The Financial Power of the Powerless: Socio‐Economic Status and Interest Rates Under Partial Rule of Law

39 Pages Posted: 5 Mar 2018

See all articles by Timur Kuran

Timur Kuran

Duke University - Department of Economics

Jared Rubin

Chapman University - The George L. Argyros School of Business & Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

In advanced economies interest rates vary inversely with the risk of default, which itself is negatively related to the borrower's socio‐economic status. The former relationship depends on the impartiality of the law. Where the law is markedly biased in favour of certain groups, these groups will pay a surcharge for capital. Legal power, as measured by privileges before the law, thus undermines financial power, the capacity to borrow cheaply. Developing this argument, this article also tests it through judicial records from Ottoman Istanbul, 1602–1799. Three privileged Ottoman groups–men, Muslims and titled elites–all paid relatively high interest rates conditional on various loan characteristics.

Suggested Citation

Kuran, Timur and Rubin, Jared, The Financial Power of the Powerless: Socio‐Economic Status and Interest Rates Under Partial Rule of Law (March 2018). The Economic Journal, Vol. 128, Issue 609, pp. 758-796, 2018. Available at SSRN: https://ssrn.com/abstract=3133425 or http://dx.doi.org/10.1111/ecoj.12389

Timur Kuran (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Jared Rubin

Chapman University - The George L. Argyros School of Business & Economics ( email )

One University Drive
Orange, CA 92866
United States

HOME PAGE: http://www.jaredcrubin.com

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