In Defence of Usury Laws
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.
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.:
- John Moore & Nobuhiro Kiyotaki, "undated".
1995-5, Edinburgh School of Economics, University of Edinburgh.
- 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.
- Manove, M. & Padilla, A.J., 1997.
"Banking (Conservatively) with Optimists,"
9718, Centro de Estudios Monetarios Y Financieros-.
- Coco, G., 1997. "Credit Rationing and the Welfare Gain from Usury Laws," Discussion Papers 9715, Exeter University, Department of Economics.
- Maurice B. Goudzwaard, 1968. "Price Ceilings And Credit Rationing," Journal of Finance, American Finance Association, vol. 23(1), pages 177-185, 03.
- Crafton, Steven M, 1980. "An Empirical Test of the Effect of Usury Laws," Journal of Law and Economics, University of Chicago Press, vol. 23(1), pages 135-145, April.
- Williamson, Stephen D., 1986.
"Costly monitoring, financial intermediation, and equilibrium credit rationing,"
Journal of Monetary Economics,
Elsevier, vol. 18(2), pages 159-179, September.
- Stephen D. Williamson, 1984. "Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing," Working Papers 583, Queen's University, Department of Economics.
- 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 1343-1366, September.
- Shleifer, Andrei & Vishny, Robert W., 1992. "Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Scholarly Articles 27692663, Harvard University Department of Economics.
- Peterson, Richard L, 1983. " Usury Laws and Consumer Credit: A Note," Journal of Finance, American Finance Association, vol. 38(4), pages 1299-1304, September.
- Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, December.
- Avio, Kenneth L, 1974. "On the Effects of Statutory Interest Rate Ceilings," Journal of Finance, American Finance Association, vol. 29(5), pages 1383-1395, December.
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- De Meza, D. & Southey, C., 1995.
"The Borrower's Curse: Optimism, Finance and Enterpreneurship,"
9502, Exeter University, Department of Economics.
- de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, vol. 106(435), pages 375-386, March.
- 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 1363-1382, December.
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 references are entirely missing, you can add them using this form.