Why Shylock Can be Efficient A Theory of Usury Contracts
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Why Shylock Can be Efficient A Theory of Usury Contracts
Credit and Capital Markets – Kredit und Kapital, Vol. 35 (2002), Iss. 3 : pp. 381–399
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Donato Masciandaro, Milan
References
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Abstract
In this paper we demonstrate the characteristic of usury contracts in respect to bank loan contracts. Traditionally usury is an inefficient result of credit market failures. On the contrary in our dynamic micro model, usury can be more efficient than the bank loan contract because debt renegotiations are more likely to be implemented, given specific features of the illegal usurer technology and an entrepreneur’s decreasing risk aversion. We also show that a high level of interest rate does not represent a necessary or a sufficient condition for the existence of usury contracts. (JEL K40, K42, K14, G18)