Should Courts Enforce Credit Contracts Strictly ?
The linkages between law and finance are currently the centre of wideranging empirical investigations. This article analyse the effects of legal system efficiency on the functioning of the credit market by using a simple banking model with information asymmetries about borrowers'entrepreneurial talent. It is shown that improvements in the enforcement of contracts by courts reduce agency problems, but can also reduce banks' incentive to adequately screen borrowers, thus worsening credit allocation and social welfare. Improvements in accounting standards, however, always make bank screening of borrowers less costly and improve credit allocation.
|Date of creation:||May 2003|
|Contact details of provider:|| Postal: Piazzale Martelli, 8, 60121 Ancona|
Phone: +39 071 220 7100
Fax: +39 071 220 7102
Web page: http://www.dises.univpm.it/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Davide IACOVONI & Alberto ZAZZARO, 2000.
"Legal System Efficiency, Information Production, and Technological Choice: A Banking Model,"
129, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
- Davide Iacoboni & Alberto Zazzaro, 2000. "Legal system efficiency, information production, and technological choice: a banking model," Heterogeneity and monetary policy 0005, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
- Reint Gropp & John Karl Scholz & Michelle White, 1996.
"Personal Bankruptcy and Credit Supply and Demand,"
NBER Working Papers
5653, National Bureau of Economic Research, Inc.
- Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-689, October.
- Riccardo Lucchetti & Luca Papi & Alberto Zazzaro, 2001.
"Banks´ Inefficiency and Economic Growth A Micro-Macro Approach,"
Development Working Papers
153, Centro Studi Luca d'Agliano, University of Milano.
- Lucchetti, Riccardo & Papi, Luca & Zazzaro, Alberto, 2001. "Banks' Inefficiency and Economic Growth: A Micro-Macro Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(4), pages 400-424, September.
- Riccardo Lucchetti & Luca Papi & Alberto Zazzaro, 2000. "Banks' inefficiency and economic growth: a micro-macro approach," Heterogeneity and monetary policy 0004, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
- Stephen D. Williamson, 1984.
"Costly Monitoring, Loan Contracts and Equilibrium Credit Rationing,"
572, Queen's University, Department of Economics.
- Stephen D. Williamson, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 102(1), pages 135-145.
- Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer & Robert W. Vishny, 1999. "Investor Protection: Origins, Consequences, and Reform," NBER Working Papers 7428, National Bureau of Economic Research, Inc.
- Levine, Ross, 1999. "Law, Finance, and Economic Growth," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 8-35, January.
- Ross Levine, 1998.
"The legal environment, banks, and long-run economic growth,"
Federal Reserve Bank of Cleveland, issue Aug, pages 596-620.
- Levine, Ross, 1998. "The Legal Environment, Banks, and Long-Run Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 596-613, August.
- Daniela Fabbri & Mario Padula, 2001. "Judicial Costs and Household Debt," CSEF Working Papers 65, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Raghuram G. Rajan & Luigi Zingales, 1996.
"Financial Dependence and Growth,"
NBER Working Papers
5758, National Bureau of Economic Research, Inc.
- Douglas Gale & Martin Hellwig, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 647-663.
- Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999.
"Finance and the sources of growth,"
Policy Research Working Paper Series
2057, The World Bank.
- Chan, Yuk-Shee & Kanatas, George, 1985. "Asymmetric Valuations and the Role of Collateral in Loan Agreements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(1), pages 84-95, February.
- Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1999. "Investor Protection: Origins, Consequences, Reform," Harvard Institute of Economic Research Working Papers 1883, Harvard - Institute of Economic Research.
- Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
- De Meza, David & Webb, David C., 1988. "Credit market efficiency and tax policy in the presence of screening costs," Journal of Public Economics, Elsevier, vol. 36(1), pages 1-22, June.
- Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-744, Winter.
- Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
- Triantis, George G, 1992. "Secured Debt under Conditions of Imperfect Information," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 225-258, January.
- Townsend, Robert M., 1988. "Information constrained insurance : The revelation principle extended," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 411-450.
When requesting a correction, please mention this item's handle: RePEc:anc:wpaper:181. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maurizio Mariotti)
If references are entirely missing, you can add them using this form.