IDEAS home Printed from https://ideas.repec.org/p/cep/stieop/008.html
   My bibliography  Save this paper

The de Soto Effect

Author

Listed:
  • Timothy Besley
  • Maitreesh Ghatak

Abstract

This paper explores the consequences of creating and improving property rights so thatfixed assets can be used as collateral. This has become a cause célèbre of Hernando de Sotowhose 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 thelogic of the argument for credit contracts, both in isolation, and in market equilibrium. Weshow that the impact will vary with the degree of market competition. Where competition isweak, it is possible that borrowers will be worse off when property rights improve. Wediscuss the implications for optimal policy and the political economy of policy reform.

Suggested Citation

  • Timothy Besley & Maitreesh Ghatak, 2009. "The de Soto Effect," STICERD - Economic Organisation and Public Policy Discussion Papers Series 008, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stieop:008
    as

    Download full text from publisher

    File URL: https://sticerd.lse.ac.uk/dps/eopp/eopp08.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dean Karlan & Markus Mobius & Tanya Rosenblat & Adam Szeidl, 2009. "Trust and Social Collateral," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1307-1361.
    2. Rajan, Raghuram & Zingales, Luigi, 2006. "The Persistence of Underdevelopment: Institutions, Human Capital or Constituencies," CEPR Discussion Papers 5867, C.E.P.R. Discussion Papers.
    3. Markus Goldstein & Christopher Udry, 2008. "The Profits of Power: Land Rights and Agricultural Investment in Ghana," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 981-1022, December.
    4. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," American Economic Review, American Economic Association, vol. 92(5), pages 1335-1356, December.
    5. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    6. Galiani, Sebastian & Schargrodsky, Ernesto, 2010. "Property rights for the poor: Effects of land titling," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 700-729, October.
    7. Bruno Biais & Thomas Mariotti, 2009. "Credit, Wages, and Bankruptcy Laws," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 939-973, September.
    8. Besley, Timothy & Ghatak, Maitreesh, 2010. "Property Rights and Economic Development," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4525-4595, Elsevier.
    9. Ulf von Lilienfeld-Toal & Dilip Mookherjee, 2010. "The Political Economy of Debt Bondage," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 44-84, August.
    10. Francesco Caselli & Nicola Gennaioli, 2008. "Economics and Politics of Alternative Institutional Reforms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 1197-1250.
    11. Genicot, Garance, 2002. "Bonded labor and serfdom: a paradox of voluntary choice," Journal of Development Economics, Elsevier, vol. 67(1), pages 101-127, February.
    12. Dilip Mookherjee & Debraj Ray, 2002. "Contractual Structure and Wealth Accumulation," American Economic Review, American Economic Association, vol. 92(4), pages 818-849, September.
    13. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    14. Abhijit V. Banerjee & Esther Duflo & Kaivan Munshi, 2003. "The (Mis)Allocation of Capital," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 484-494, 04/05.
    15. Kranton, Rachel E. & Swamy, Anand V., 1999. "The hazards of piecemeal reform: british civil courts and the credit market in colonial India," Journal of Development Economics, Elsevier, vol. 58(1), pages 1-24, February.
    16. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
    17. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
    18. José M. Liberti & Atif R. Mian, 2010. "Collateral Spread and Financial Development," Journal of Finance, American Finance Association, vol. 65(1), pages 147-177, February.
    19. Erica Field, 2005. "Property Rights and Investment in Urban Slums," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 279-290, 04/05.
    20. Ghatak, Maitreesh & Morelli, Massimo & Sjostrom, Tomas, 2007. "Entrepreneurial talent, occupational choice, and trickle up policies," Journal of Economic Theory, Elsevier, vol. 137(1), pages 27-48, November.
    21. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 151-172.
    22. Field, Erica Marie, 2005. "Property Rights and Investment in Urban Slums," Scholarly Articles 3634150, Harvard University Department of Economics.
    23. Erica Field, 2007. "Entitled to Work: Urban Property Rights and Labor Supply in Peru," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1561-1602.
    24. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-937, October.
    25. Abhijit V. Banerjee & Paul J. Gertler & Maitreesh Ghatak, 2002. "Empowerment and Efficiency: Tenancy Reform in West Bengal," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 239-280, April.
    26. Krishna B. Kumar & John G. Matsusaka, 2004. "Village versus Market Social Capital: An Approach to Development," Development and Comp Systems 0408003, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Competition, property rights and credit
      by Economic Logician in Economic Logic on 2009-10-23 19:01:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Baptiste Massenot & Stéphane Straub, 2016. "Informal Sector And Economic Development: The Credit Supply Channel," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1046-1067, April.
    2. Bellemare, Marc F., 2010. "The Productivity Impacts of de Jure and de Facto Land Rights," MPRA Paper 23639, University Library of Munich, Germany.
    3. Chaoran Chen & Diego Restuccia & Raül Santaeulàlia-Llopis, 2023. "Land Misallocation and Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 441-465, April.
    4. Esther Acquah & Lorenzo Carbonari & Alessio Farcomeni & Giovanni Trovato, 2023. "Institutions and economic development: new measurements and evidence," Empirical Economics, Springer, vol. 65(4), pages 1693-1728, October.
    5. Yanlong Zhang, 2021. "The Demsetz’s Evolutionary Theory of Property Rights as Applied to Rural Land of China: A Supplement," Land, MDPI, vol. 10(9), pages 1-15, August.
    6. Sebastian Galiani & Ernesto Schargrodsky, 2011. "Land Property Rights and Resource Allocation," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages 329-345.
    7. Gani Aldashev, 2009. "Legal institutions, political economy, and development," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(2), pages 257-270, Summer.
    8. Mauricio de Moura & Marcos Ribeiro & Caio Piza, 2014. "Are there any distributive effects of land title on labor supply? evidence from Brazil," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-18, December.
    9. Rahmat Aris Pratomo & D. Ary A. Samsura & Erwin van der Krabben, 2020. "Transformation of Local People’s Property Rights Induced by New Town Development (Case Studies in Peri-Urban Areas in Indonesia)," Land, MDPI, vol. 9(7), pages 1-24, July.
    10. Amendola Nicola & Carbonari Lorenzo & Ferraris Leo, 2020. "Collateral and development," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-17, January.
    11. Caio Piza & Mauricio José Serpa Barros de Moura, 2011. "How Does Land Title Affect Access to Credit? Empirical Evidence from an Emerging Economy," Working Paper Series 2211, Department of Economics, University of Sussex Business School.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Besley, Timothy & Ghatak, Maitreesh, 2010. "Property Rights and Economic Development," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4525-4595, Elsevier.
    2. Subramanian, Arjunan & Kumar, Parmod, 2024. "Property rights, factor allocation and household welfare: Experimental evidence from a land titling program in India," Journal of Development Economics, Elsevier, vol. 167(C).
    3. Timothy Besley & Torsten Persson, 2011. "Pillars of Prosperity: The Political Economics of Development Clusters," Economics Books, Princeton University Press, edition 1, number 9624.
    4. Meeks, Robyn, 2018. "Property Rights and Water Access: Evidence from Land Titling in Rural Peru," World Development, Elsevier, vol. 102(C), pages 345-357.
    5. Aragón, Fernando M., 2015. "Do better property rights improve local income?: Evidence from First Nations' treaties," Journal of Development Economics, Elsevier, vol. 116(C), pages 43-56.
    6. Islam, Md. Rabiul & Madsen, Jakob B. & Raschky, Paul A., 2015. "Gold and silver mining in the 16th and 17th centuries, land titles and agricultural productivity," European Journal of Political Economy, Elsevier, vol. 39(C), pages 150-166.
    7. Deininger, Klaus & Goyal, Aparajita, 2012. "Going digital: Credit effects of land registry computerization in India," Journal of Development Economics, Elsevier, vol. 99(2), pages 236-243.
    8. Macours, Karen & Janvry, Alain de & Sadoulet, Elisabeth, 2010. "Insecurity of property rights and social matching in the tenancy market," European Economic Review, Elsevier, vol. 54(7), pages 880-899, October.
    9. A. Patrick Behrer & Edward L. Glaeser & Giacomo A. M. Ponzetto & Andrei Shleifer, 2021. "Securing Property Rights," Journal of Political Economy, University of Chicago Press, vol. 129(4), pages 1157-1192.
    10. Ali, Daniel Ayalew & Deininger, Klaus & Goldstein, Markus, 2014. "Environmental and gender impacts of land tenure regularization in Africa: Pilot evidence from Rwanda," Journal of Development Economics, Elsevier, vol. 110(C), pages 262-275.
    11. Morelli, Massimo & Ghatak, Maitreesh & Aney, Madhav, 2011. "Can Market Failure Cause Political Failure," CEPR Discussion Papers 8533, C.E.P.R. Discussion Papers.
    12. Vranken, Liesbet & Macours, Karen & Noev, Nivelin & Swinnen, Johan F.M., 2007. "Property Rights Imperfections, Asset Allocation, and Welfare: Co-Ownership in Bulgaria," 104th Seminar, September 5-8, 2007, Budapest, Hungary 7795, European Association of Agricultural Economists.
    13. Leight, Jessica, 2016. "Reallocating wealth? Insecure property rights and agricultural investment in rural China," China Economic Review, Elsevier, vol. 40(C), pages 207-227.
    14. Ayalew, Hailemariam & Admasu, Yeshwas & Chamberlin, Jordan, 2021. "Is land certification pro-poor? Evidence from Ethiopia," Land Use Policy, Elsevier, vol. 107(C).
    15. Lai, Yani & Wang, Jiayuan & Lok, Waiming, 2017. "Redefining property rights over collective land in the urban redevelopment of Shenzhen, China," Land Use Policy, Elsevier, vol. 69(C), pages 485-493.
    16. Wang, Shing-Yi, 2014. "Property rights and intra-household bargaining," Journal of Development Economics, Elsevier, vol. 107(C), pages 192-201.
    17. Deininger, Klaus & Ali, Daniel Ayalew & Alemu, Tekie, 2008. "Impacts of land certification on tenure security, investment, and land markets : evidence from Ethiopia," Policy Research Working Paper Series 4764, The World Bank.
    18. Lahsen, Amina. A & Piper, Alan T., 2018. "Property Rights and Intellectual Property Protection, GDP growth and Well-Being in Latin America," MPRA Paper 90034, University Library of Munich, Germany.
    19. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
    20. Galiani Sebastian & Schargrodsky Ernesto, 2016. "The Deregularization of Land Titles," Man and the Economy, De Gruyter, vol. 3(2), pages 169-188, December.

    More about this item

    JEL classification:

    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Economic Logic blog

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cep:stieop:008. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://sticerd.lse.ac.uk/_new/publications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.