In Defense of Usury Laws
Usury law is often criticized by economists for curtailing lending and thus creating deadweight costs. This paper shows that if moral hazard leads to credit rationing, a just-binding usury law creates a deadweight "gain." This property also holds in most market-clearing equilibria. Independent of social insurance benefits, or curbing present-biased preferences, interest rate caps have merit. Copyright (c) 2009 The Ohio State University.
Volume (Year): 41 (2009)
Issue (Month): 8 (December)
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