Working Paper: CEPR ID: DP7259
Authors: Timothy J. Besley; Maitreesh Ghatak
Abstract: This paper explores the consequences of creating and improving property rights so that fixed assets can be used as collateral. This has become a cause célèbre of Hernando de Soto whose views are influential in debates about policy reform concerning property rights. Hence, we refer to the economic impact of such reforms as the de Soto effect. We explore the logic of the argument for credit contracts, both in isolation, and in market equilibrium. We show that the impact will vary with the degree of market competition. Where competition is weak, it is possible that borrowers will be worse off when property rights improve. We discuss the implications for optimal policy and the political economy of policy reform.
Keywords: Collateral; Credit Markets; Hernando de Soto
JEL Codes: G20; G28; K11; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improving property rights (P14) | Increased credit availability (E51) |
| Increased credit availability (E51) | Borrowers worse off (in weak competition) (D43) |
| Improving property rights (P14) | Borrowers worse off (in weak competition) (D43) |
| Weak competition in credit markets (G19) | Borrowers worse off when property rights improve (P14) |
| Improving property rights (P14) | Increased collateral demands by lenders (in weak competition) (G21) |