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Incentives and the De Soto Effect

Besley, Timothy, Burchardi, Konrad B. and Ghatak, Maitreesh (2012) Incentives and the De Soto Effect. The Quarterly Journal of Economics, 127 (1). pp. 237-282. ISSN 0033-5533

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Abstract

This paper explores the consequences of improving property rights to facilitate the use of fixed assets as collateral, popularly attributed to the influential policy advocate Hernando de Soto. We use an equilibrium model of a credit market with moral hazard to characterize the theoretical effects and also develop a quantitative analysis using data from Sri Lanka. We show that the effects are likely to be nonlinear and heterogeneous by wealth group. They also depend on the extent of competition between lenders. There can be significant increases in profits and reductions in interest rates when credit markets are competitive. However, since these are due to reductions in moral hazard, that is, increased effort, the welfare gains tend to be modest when cost of effort is taken into account. Allowing for an extensive margin where borrowers gain access to the credit market can make these effects larger depending on the underlying wealth distribution.

Item Type: Article
Official URL: http://qje.oxfordjournals.org/
Additional Information: © 2012 The Authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q15 - Land Ownership and Tenure; Land Reform; Land Use; Irrigation
Sets: Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 13 Feb 2012 16:51
URL: http://eprints.lse.ac.uk/41879/

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