Courts and Banks: Effects of Judicial Enforcement on Credit Markets

CSEF Working Paper No. 58

43 Pages Posted: 10 Mar 2002

See all articles by Magda Bianco

Magda Bianco

Bank of Italy

Tullio Jappelli

University of Naples Federico II - Department of Economics and Statistics; Center for Studies in Economics and Finance - CSEF; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

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Date Written: April 2002

Abstract

The cost of enforcing contracts is a key determinant of market performance. We document this point with reference to the credit market in a model of opportunistic debtors and inefficient courts. According to the model, improvements in judicial efficiency should reduce credit rationing and increase lending, with an ambiguous effect on interest rates that depends on banking competition and on the type of judicial reform. These predictions are supported by panel data on Italian provinces and by cross-country evidence. In Italian provinces with longer trials or large backlogs of pending trials, credit is less widely available. International evidence also shows that the depth of mortgage markets is inversely related to the costs of mortgage foreclosure and other proxies for judicial inefficiency.

Keywords: enforcement, judicial efficiency, credit market, interest rates

JEL Classification: G2, K4

Suggested Citation

Bianco, Magda and Jappelli, Tullio and Pagano, Marco, Courts and Banks: Effects of Judicial Enforcement on Credit Markets (April 2002). CSEF Working Paper No. 58, Available at SSRN: https://ssrn.com/abstract=302133 or http://dx.doi.org/10.2139/ssrn.302133

Magda Bianco

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Tullio Jappelli

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

Center for Studies in Economics and Finance - CSEF

University of Naples Federico II
Via Cinthia - Monte S. Angelo
Napoli, 80146
Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=106354

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Marco Pagano (Contact Author)

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

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