The De Soto Effect
Timothy J. Besley
London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
London School of Economics (LSE) - Department of Economics
CEPR Discussion Paper No. DP7259
This paper explores the consequences of creating and improving property rights so that fixed assets can be used as collateral. This has become a cause célèbre of Hernando de Soto whose views are influential in debates about policy reform concerning property rights. Hence, we refer to the economic impact of such reforms as the de Soto effect. We explore the logic of the argument for credit contracts, both in isolation, and in market equilibrium. We show that the impact will vary with the degree of market competition. Where competition is weak, it is possible that borrowers will be worse off when property rights improve. We discuss the implications for optimal policy and the political economy of policy reform.
Number of Pages in PDF File: 34
Keywords: collateral, credit markets, Hernando de Soto
JEL Classification: G20, G28, K11, O16working papers series
Date posted: May 19, 2009
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