IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

How much should debtors be punished in case of default?

  • Aloisio Araujo

    (EPGE-FGV/RJ and IMPA)

  • Bruno Funchal


    (FUCAPE Business School)

This study investigates the relationship between debtor punishment and the development of the credit market. We empirically analyze how the level of debtor punishment relates to the credit market expansion. We find evidence that an increase in debtor punishment tends to produce a positive effect on credit markets for states with low level of punishment and a negative effect for states with high level of punishment. Hence, there is an intermediate level of debtor punishment that maximizes the size of the personal credit market. This intermediate level accounts for the need of creditors' protection to reduce moral hazard, to encourage the supply of credit, and for the need to protect borrowers from a bad state of nature

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Primeira Versão, 2013
Download Restriction: no

Paper provided by Fucape Business School in its series Fucape Working Papers with number 41.

in new window

Length: 30 pages
Date of creation: Oct 2013
Date of revision:
Publication status: Published in Fucape Working Papers, Outubro 2013
Handle: RePEc:bbz:fcpwps:41
Contact details of provider: Postal: Fucape Business School Brazilian Business Review Av. Fernando Ferrari, 1358, Boa Vista CEP 29075-505 Vitória-ES
Phone: +55 27 4009-4408
Fax: +55 27 4009-4422
Web page:

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.:

as in new window
  1. Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," STICERD - Theoretical Economics Paper Series 233, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," Harvard Institute of Economic Research Working Papers 1768, Harvard - Institute of Economic Research.
    • Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
    • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
    • Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  3. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  4. Song Han & Geng Li, 2009. "Household borrowing after personal bankruptcy," Finance and Economics Discussion Series 2009-17, Board of Governors of the Federal Reserve System (U.S.).
  5. Robert M. Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  6. Villegas, Daniel J., 1990. "Regulation of creditor practices: An evaluation of the FTC's credit practice rule," Journal of Economics and Business, Elsevier, vol. 42(1), pages 51-67, February.
  7. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2004. "Finance, Inequality, and Poverty: Cross-Country Evidence," NBER Working Papers 10979, National Bureau of Economic Research, Inc.
  8. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2001. "Default and Punishment in General Equilibrium," Cowles Foundation Discussion Papers 1304R5, Cowles Foundation for Research in Economics, Yale University, revised Mar 2004.
  9. Hart, O. & Moore, J., 1989. "Default And Renegotiation: A Dynamic Model Of Debt," Working papers 520, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Berger, Allen N. & Hasan, Iftekhar & Klapper, Leora F., 2004. "Further evidence on the link between finance and growth: An international analysis of community banking and economic performance," Research Discussion Papers 8/2004, Bank of Finland.
  11. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June.
  12. Astrid A. Dick & Andreas Lehnert, 2007. "Personal bankruptcy and credit market competition," Staff Reports 272, Federal Reserve Bank of New York.
  13. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August.
  14. Dilip Mookherjee & Ulf von Lilienfeld-Toal & Sujata Visaria, 2010. "The Distributive Impact Of Reforms In Credit Enforcement: Evidence From Indian Debt Recovery Tribunals," Boston University - Department of Economics - Working Papers Series WP2010-034, Boston University - Department of Economics.
  15. Berkowitz, Jeremy & Hynes, Richard, 1999. "Bankruptcy Exemptions and the Market for Mortgage Loans," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 809-30, October.
  16. Jeremy Berkowitz & Michelle J. White, 2004. "Bankruptcy and Small Firms' Access to Credit," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 69-84, Spring.
  17. Zame, William R, 1993. "Efficiency and the Role of Default When Security Markets Are Incomplete," American Economic Review, American Economic Association, vol. 83(5), pages 1142-64, December.
  18. Barth, James R, et al, 1983. " The Effect of Government Regulations on Personal Loan Markets: A Tobit Estimation of a Microeconomic Model," Journal of Finance, American Finance Association, vol. 38(4), pages 1233-51, September.
  19. repec:tpr:qjecon:v:112:y:1997:i:1:p:217-51 is not listed on IDEAS
  20. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
  21. Jappelli, Tullio & Pagano, Marco, 2002. "Information sharing, lending and defaults: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2017-2045, October.
  22. Paola Sapienza, 2002. "The Effects of Banking Mergers on Loan Contracts," Journal of Finance, American Finance Association, vol. 57(1), pages 329-367, 02.
  23. Lin, Emily Y. & White, Michelle J., 2001. "Bankruptcy and the Market for Mortgage and Home Improvement Loans," Journal of Urban Economics, Elsevier, vol. 50(1), pages 138-162, July.
  24. 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.
  25. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-50, July.
  26. Wang, Hung-Jen & White, Michelle J, 2000. "An Optimal Personal Bankruptcy Procedure and Proposed Reforms," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 255-86, January.
  27. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
  28. Araujo, Aloisio P. & Ferreira, Rafael V.X. & Funchal, Bruno, 2012. "The Brazilian bankruptcy law experience," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 994-1004.
  29. Patrick Bolton & Howard Rosenthal, 2002. "Political Intervention in Debt Contracts," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1103-1134, October.
  30. Richard Hynes & Eric A. Posner, 2002. "The Law and Economics of Consumer Finance," American Law and Economics Review, Oxford University Press, vol. 4(1), pages 168-207, January.
  31. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
  32. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
  33. Ronel Elul & Narayanan Subramanian, 2002. "Forum-Shopping and Personal Bankruptcy," Journal of Financial Services Research, Springer, vol. 21(3), pages 233-255, June.
  34. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
  35. Hynes, Richard M & Malani, Anup & Posner, Eric A, 2004. "The Political Economy of Property Exemption Laws," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 19-43, April.
  36. Christiano Arrigoni Coelho & Bruno Funchal & João Manoel Pinho de Mello, 2010. "The Brazilian Payroll Lending Experiment," Textos para discussão 573, Department of Economics PUC-Rio (Brazil).
  37. Tullio Jappelli & Marco Pagano, 2000. "Information Sharing in Credit Markets: The European Experience," CSEF Working Papers 35, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  38. Abhijit V. Banerjee & Paul J. Gertler & Maitreesh Ghatak, 2002. "Empowerment and Efficiency: Tenancy Reform in West Bengal," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 239-280, April.
  39. Grant, Charles, 2010. "Evidence on the insurance effect of bankruptcy exemptions," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2247-2254, September.
  40. Jappelli, Tullio & Pagano, Marco, 1991. "Information Sharing in Credit Markets," CEPR Discussion Papers 579, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bbz:fcpwps:41. 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: (Adriana Gasparino)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.