The De Soto Effect

Besley, Timothy J.; Ghatak, Maitreesh

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The De Soto Effect

LSE STICERD Research Paper No. EOPP008

35 Pages Posted: 3 Feb 2010

See all articles by Timothy J. Besley

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)

Maitreesh Ghatak

London School of Economics (LSE) - Department of Economics

There are 2 versions of this paper

Date Written: April 2009

Abstract

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.

JEL Classification: O10, H10, P16

Suggested Citation: Suggested Citation

Besley, Timothy J. and Ghatak, Maitreesh, The De Soto Effect (April 2009). LSE STICERD Research Paper No. EOPP008, Available at SSRN: https://ssrn.com/abstract=1546902