The Political Economy of Debt Bondage

Ulf von Lilienfeld-Toal and Dilip Mookherjee

American Economic Journal: Microeconomics, 2010, vol. 2, issue 3, 44-84

Abstract: What are the effects of restricting bonded labor clauses in tenancy or debt contracts? While such restrictions reduce agents' ability to credibly commit ex ante to repay principals in states where they default on their financial obligations, they also generate a pecuniary externality on other principal-agent pairs by reducing the equilibrium profit earned by principals. This turns out to imply that on both political and normative grounds, restrictions on bonded labor become more attractive when borrowers become wealthier or the range of collateral instruments widens. (JEL D82, D86, J82, K12)

JEL-codes: D82 D86 J82 K12 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/mic.2.3.44
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Citations: View citations in EconPapers (14)

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