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Type: Journal article
Title: Only twice as much: A rule for regulating lenders
Author: Oak, M.
Swamy, A.
Citation: Economic Development and Cultural Change, 2010; 58(4):775-803
Publisher: Univ Chicago Press
Issue Date: 2010
ISSN: 0013-0079
Statement of
Mandar Oak and Anand Swamy
Abstract: Present‐day policies aiming to improve the performance of credit markets, such as group lending or creation of collateral, typically aim to change incentives for borrowers. In contrast, premodern credit market interventions, such as usury laws, often targeted the behavior of lenders. We describe and analyze a norm that, although widespread, has escaped scholarly attention: a ceiling on interest accumulation, which limits it to the amount of the original principal. We interpret this rule, which is found in Hindu, Roman, and Chinese legal traditions, as giving lenders the incentive to find more capable borrowers, who will be able to repay early, thereby improving the allocation of capital. We document the consistency between our explanation and the rationale offered by the policy makers.
Rights: Copyright 2010 by The University of Chicago. All rights reserved.
DOI: 10.1086/649641
Appears in Collections:Aurora harvest
Economics publications

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