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Contingent judicial deference: theory and application to usury laws

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  • Guimarães, Bernardo de Vasconcellos
  • Salama, Bruno Meyerhof

Abstract

Legislation that seems unreasonable to courts is less likely to be followed. Building on this premise, we propose a model and obtain two main results. First, the enactment of legislation prohibiting something raises the probability that courts will allow related things not expressly forbidden. In particular, the imposition of an interest rate ceiling can make it more likely that courts will validate contracts with interest rates below the legislated cap. Second, legal uncertainty is greater with legislation that commands little deference from courts than with legislation that commands none. We discuss examples of e§ects of legislated prohibitions (and, in particular, usury laws) that are consistent with the model.

Suggested Citation

  • Guimarães, Bernardo de Vasconcellos & Salama, Bruno Meyerhof, 2017. "Contingent judicial deference: theory and application to usury laws," Textos para discussão 440, FGV EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  • Handle: RePEc:fgv:eesptd:440
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    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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