In defence of usury laws

Coco, Giuseppe and de Meza, David ORCID: 0000-0002-5638-8310 (2001) In defence of usury laws. Financial Markets Group Discussion Papers (369). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

This paper shows that if moral hazard leads to credit rationing, an appropriate usury law must raise social welfare. Under market clearing, a usury law is always beneficial if funds are inelastically supplied. When entrepreneurial heterogeneity is introduced, an improvement arises even when the supply of funds is elastic. These results apply also in costly stateverification models and diversionary models of the credit market. Finally, a usury law proves useful in eliminating low-yielding projects when some entrepreneurs display excess optimism.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://fmg.ac.uk
Additional Information:	© 2001 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	K - Law and Economics > K0 - General > K00 - General
Date Deposited:	28 Aug 2009 10:39
Last Modified:	11 Dec 2024 18:29
URI:	http://eprints.lse.ac.uk/id/eprint/25042

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