In defence of usury laws

Giuseppe Coco and David de Meza

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: 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 stateverification 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.

JEL-codes: K00 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2001-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://eprints.lse.ac.uk/25042/ Open access version. (application/pdf)

Related works:
Journal Article: In Defense of Usury Laws (2009)
Journal Article: In Defense of Usury Laws (2009)
Working Paper: In Defence of Usury Laws (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:25042

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