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In defense of usury laws

Coco, Giuseppe and de Meza, David (2009) In defense of usury laws. Journal of Money, Credit and Banking, 41 (8). pp. 1691-1703. ISSN 0022-2879

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Abstract

Usury law is often criticized by economists for curtailing lending and thus creating deadweight costs. This paper shows that if moral hazard leads to credit rationing, a just-binding usury law creates a deadweight gain. This property also holds in most market-clearing equilibria. Independent of social insurance benefits, or curbing present-biased preferences, interest rate caps have merit.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information: © 2009 The Ohio State University
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Management
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 10 May 2011 15:48
URL: http://eprints.lse.ac.uk/36071/

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