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dc.contributor.authorMookherjee, Dilipen_US
dc.contributor.authorvon Lilienfeld-Toal, Ulfen_US
dc.description.abstractShould the law restrict liability of defaulting borrowers? We abstract from possible benefitsarising from limited rationality or risk-aversion of borrowers, contractual incompleteness,or lender moral hazard. We focus instead on general equilibrium implications of liability ruleswith moral hazard among borrowers with varying wealth. If lenders are on the short sideof the market, weakening liability rules lower lender profits, may cause additional exclusionamong the poor, but generate additional rents for wealthier borrowers. For certain changes inliability rules (such as a ban on bonded labor, or weakening bankruptcy rules below a wealththreshold) they also raise productivity among borrowers of intermediate wealth. Hence theycan be interpreted as a form of efficiency-enhancing redistribution from lenders and poorborrowers to middle class borrowers. Our model provides a possible rationale for why weakerliability rules are observed in wealthier countries.en_US
dc.relation.ispartofseries|aProceedings of the German Development Economics Conference, Berlin 2006 / Verein für Socialpolitik, Research Committee Development Economics |x18en_US
dc.titleBankruptcy law, bonded labor and inequalityen_US
dc.typeConference Paperen_US

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