IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

In Defence of Usury Laws

  • David De Meza

    ()

  • Giuseppe Coco

This paper shows that if moral hazard leads to credit rationing, an appropriate usury law must raise social welfare. Under market clearing, a usury law is always beneficial if funds are inelastically supplied. When entrepreneurial heterogeneity is introduced, an improvement arises even when the supply of funds is elastic. These results apply also in costly state-verification models and diversionary models of the credit market. Finally, a usury law proves useful in eliminating low-yielding projects when some entrepreneurs display excess optimism.

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: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp369.pdf
Download Restriction: no

Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp369.

as
in new window

Length:
Date of creation: Jan 2001
Date of revision:
Handle: RePEc:fmg:fmgdps:dp369
Contact details of provider: Web page: http://www.lse.ac.uk/fmg/

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. Peterson, Richard L, 1983. " Usury Laws and Consumer Credit: A Note," Journal of Finance, American Finance Association, vol. 38(4), pages 1299-1304, September.
  2. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
  3. de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, vol. 106(435), pages 375-86, March.
  4. Michael Manove & A. Jorge Padilla, 1999. "Banking (Conservatively) with Optimists," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 324-350, Summer.
  5. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  6. Williamson, Stephen D., 1986. "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 159-179, September.
  7. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  8. Coco, G., 1997. "Credit Rationing and the Welfare Gain from Usury Laws," Discussion Papers 9715, Exeter University, Department of Economics.
  9. Avio, Kenneth L, 1974. "On the Effects of Statutory Interest Rate Ceilings," Journal of Finance, American Finance Association, vol. 29(5), pages 1383-95, December.
  10. Greer, Douglas F, 1974. "Rate Ceilings, Market Structure, and the Supply of Finance Company Personal Loans," Journal of Finance, American Finance Association, vol. 29(5), pages 1363-82, December.
  11. Barro, Robert J, 1976. "The Loan Market, Collateral, and Rates of Interest," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(4), pages 439-56, November.
  12. Maurice B. Goudzwaard, 1968. "Price Ceilings And Credit Rationing," Journal of Finance, American Finance Association, vol. 23(1), pages 177-185, 03.
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:fmg:fmgdps:dp369. 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: (The FMG Administration)

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.