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The Distributive Impact of Reforms in Credit Enforcement: Evidence from Indian Debt Recovery Tribunals

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Listed:
  • Ulf von Lilienfeld-Toal

    (Stockholm School of Economics)

  • Dilip Mookherjee

    (Boston University)

  • Sujata Visaria

    (Boston University)

Abstract

It is generally presumed that strengthening legal enforcement of lender rights increases credit access for all borrowers, by expanding the set of incentive compatible loan contracts. This is based on an implicit assumption of infinitely elastic supply of loans. With inelastic supply, strengthening enforcement generates general equilibrium effects which reduce credit access for small borrowers while expanding it for wealthy borrowers. We find evidence from a firm-level panel data set of such adverse distributional impacts of an Indian judicial reform which increased banks’ ability to recover non-performing loans in the 1990s.

Suggested Citation

  • Ulf von Lilienfeld-Toal & Dilip Mookherjee & Sujata Visaria, 2009. "The Distributive Impact of Reforms in Credit Enforcement: Evidence from Indian Debt Recovery Tribunals," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-183, Boston University - Department of Economics.
    • Handle: RePEc:bos:iedwpr:dp-183
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