Explaining the Effect of Financial Development on the Quality of Property Rights

26 Pages Posted: 27 Feb 2017

See all articles by Chandramouli Banerjee

Chandramouli Banerjee

University of Wisconsin - Milwaukee - Department of Economics

Niloy Bose

University of Wisconsin at Milwaukee - Department of Economics; Virginia Polytechnic Institute & State University - Department of Economics

Chitralekha Rath

University of Wisconsin - Milwaukee

Multiple version iconThere are 2 versions of this paper

Date Written: March 6, 2016

Abstract

Recent empirical evidence suggests that financial development can catalyze property rights reforms, and for such effect to materialize financial development must cross a threshold. This paper offers a theory of financial markets to explain both stylized facts defining the relationship. The explanation is based on a simple trade-off between the costs and the benefits of securing property. Securing the right to property at a cost allows agents to post collateral against loans. However, the benefits of collateral vary according to the existing credit market conditions. We include this information in the trade-off between the costs and the benefits of securing property rights along the path of financial development to explain the conditions under which financial development can create incentives for better property rights institutions.

Keywords: Financial Development; Property Rights

JEL Classification: E02, E44

Suggested Citation

Banerjee, Chandramouli and Bose, Niloy and Rath, Chitralekha, Explaining the Effect of Financial Development on the Quality of Property Rights (March 6, 2016). Available at SSRN: https://ssrn.com/abstract=2924698 or http://dx.doi.org/10.2139/ssrn.2924698

Chandramouli Banerjee

University of Wisconsin - Milwaukee - Department of Economics ( email )

3210 N. Maryland Avenue, Bolton Hall 802
Bolton Hall 802
Milwaukee, WI 53211
United States

Niloy Bose (Contact Author)

University of Wisconsin at Milwaukee - Department of Economics ( email )

Bolton Hall
Milwaukee, WI 53211
United States
414-229-6132 (Phone)

HOME PAGE: http://www.uwm.edu/Dept/Economics/faculty/bose.html

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States

Chitralekha Rath

University of Wisconsin - Milwaukee ( email )

Bolton Hall 802
3210 N. Maryland Ave.
Milwaukee, WI 53211
United States

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