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Courts and Banks: Effects of Judicial Enforcement on Credit Markets

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  • Jappelli, Tullio
  • Pagano, Marco
  • Bianco, Magda

Abstract

The cost of enforcing contracts is a key determinant of market performance. We document this point with reference to the credit market in a model of opportunistic debtors and inefficient courts. According to the model, improvements in judicial efficiency should reduce credit constraints and increase lending, with an ambiguous effect on interest rates that depends on banking competition and on the type of judicial reform. These predictions are supported by panel data on Italian provinces. In provinces with longer trials or large backlogs of pending trials, credit is less widely available.

Suggested Citation

  • Jappelli, Tullio & Pagano, Marco & Bianco, Magda, 2005. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 223-244, April.
    • Handle: RePEc:mcb:jmoncb:v:37:y:2005:i:2:p:223-44
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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