Legal system efficiency, information production, and technological choice: a banking model

Davide Iacoboni and Alberto Zazzaro ()

Heterogeneity and monetary policy from Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica

Abstract: Recent empirical studies have shown that the structure of the legal system and the efficiency in law enforcement influence the financial structure of the firms, their ability to gain access to capital markets, and the growth rate of economic systems. This paper uses a simple banking model with ex-ante and ex-post information asymmetries between borrowers and lenders to analyse the effects that the efficiency of the legal system may exert on the credit market. Its main conclusions are: (i) an efficient legal system reduces loan interest rates and, in the majority of cases, the average amount of defaults on loans; (ii) an improvement in the efficiency of legal institutions improves banks' selection procedures only provided the efficiency of the legal system is already high.

Keywords: Judicial enforcement of laws; information production; stochastic debt contracts (search for similar items in EconPapers)
JEL-codes: G21 K41 K42 (search for similar items in EconPapers)
Pages: pages 37
Date: 2000-04
New Economics Papers: this item is included in nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Legal System Efficiency, Information Production, and Technological Choice: A Banking Model (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:mod:modena:0005

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