Islamic Economics: The Emergence of a New Paradigm

John R Presley and John Sessions ()

Economic Journal, 1994, vol. 104, issue 424, 584-96

Abstract: The authors illustrate the potential impact of the Islamic doctrine on Western economic relationships by focusing on the prohibition of interest (riba) in Islamic economics. They show that the alternate method of financier remuneration (i.e., mudarabah profit-and-loss sharing) will, under certain conditions, enhance capital investment on account of its ability to act as an efficient revelation device. By applying ideas developed in the Western contract literature, the authors show that a mudarabah contract between the manager of a project and a syndicate of investors may permit a more efficient revelation of any informational asymmetries between the two. Copyright 1994 by Royal Economic Society.

Date: 1994
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