on the pareto optimality of futures contracts over islamic forward contracts implications for the emerging muslim economies a general equilibrium approach is used to demonstrate that i futures contracting on islamically permissible commodities is pareto optimal over the islamic forward contract of bai salam and ii both forms of contracting constitute a quasi equity claim instead of debt dayn as construed by the majority of islamic jurists these results are of import as they i remove a major hurdle against futures contracting by the islamic jurists thereby enabling the renovation of the financial intermediation system of emerging muslim economies and ii demonstrate that the arbitrage principle needs to be re examined under non linear asset pricing

the political economy of corporate control and labor rents in a democracy a political majority can influence both the corporate governance structure and the return to human and financial capital we argue that when financial wealth is sufficiently concentrated there is political support for high labor rents and a strong governance role for banks or large investors the model is consistent with the great reversal phenomenon in the first half of the twentieth century we offer evidence that in several financially developed countries a financially weakened middle class became concerned about labor income risk associated with free markets and supported a more corporatist financial system

the impact of usury ceilings on consumer credit usury regulation is a topic with a long history of discussion nevertheless the debate over the merits of usury regulation continues to the present day in the early part of the 1980s the rapid rise in nominal interest rates swung the debate in favor of the opponents of usury ceilings during this period a quarter of the states enacted legislation which largely eliminated their usury ceilings on consumer credit however with the return of lower interest rates in the middle part of the decade the argument for low usury ceilings gained increasing support and as a result several states lowered their usury ceilings on some types of credit the first formal economic model of the impact of usury ceilings was outlined by blitz and long 8 their insightful analysis has led researchers to focus on two hypotheses concerning the impact of usury ceilings on consumer credit hypothesis 1 usury ceilings reduce the quantity of credit obtained by high risk borrowers

the political economy of financial regulation evidence from u s state usury laws in the 19th century financial regulation was as hotly debated a political issue in the 19th century as it is today we study the political economy of state usury laws in 19th century america exploiting the wide variation in regulation enforcement and economic conditions across states and time we find that usury laws when binding reduce credit and economic activity especially for smaller firms we examine the motives of regulation and find that usury laws coincide with other economic and political policies favoring wealthy political incumbents particularly when they have more voting power the evidence suggests financial regulation is driven by private interests capturing rents from others rather than public interests protecting the underserved we examine the motives and consequences of financial regulation to better understand the implications of regulation for financial development and economic growth while the current global financial crisis has reinvigorated the debate on financial regulation s effects and motives there is a long history of financial regulation and development we can examine to shed light on these issues specifically we study the political economy of financial regulation and its consequences through the lens of usury laws in 19th century america usury laws are arguably the oldest form of financial regulation mentioned in both the bible and the koran and dating back to ancient rome having long been

limited liability and incentive contracting with ex ante action choices abstract this article examines a principal agent model of financial contracting in which a risk neutral entrepreneur agent makes an unobservable ex ante effort choice while employing the investment funds of a risk neutral investor principal the key innovation is that the investment contract is subject to statutory liability limits given these liability limits two settings are considered one in which the investor payoff function is also constrained to be monotonically nondecreasing in firm profit and another in which no such monotonic contract constraint is imposed in the former case a standard debt contract is shown to emerge and a first best effort choice is not achieved in the latter setting the optimum is characterized by a live or die payoff function and a first best effort level may or may not be realized

why is bank debt senior a theory of asymmetry and claim priority based on influence costs this theory can explain why bank debt is universally senior consistent with the presence of conflict lawyers and absolute priority violations in financial distress better organized banks would more strongly contest priority in financial distress if they were junior because deterrence can reduce creditors total expenses in a priority contest the ex post stronger lobbyist litigant should be senior ex ante for equivalent reasons the theory can advise when public debt should be senior to trade credit and or implicit contracts and can even suggest one rationale for the absolute priority rule apr this article further shows that chapter hi creditor reimbursement procedures can lower overall costs article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

raising primary school enrolment in developing countries the relative importance of supply and demand abstract few policies are as universally accepted as raising primary school enrolment in developing countries but the policy levers for achieving this goal are not straightforward this paper merges household survey data with detailed school supply characteristics from official sources in order to estimate the relative impact of demand and supply side determinants of rural primary school enrolment in mozambique policy simulations based on a set of plausible interventions show that in rural mozambique building more schools or raising adult literacy will have a larger impact on primary school enrolment rates than interventions that raise household income when relative costs are considered adult literacy campaigns are nearly 10 times more cost effective than the income intervention and 1 5 to 2 5 times better than building more schools

strategic transparency and informed trading will capital market integration force convergence of corporate governance dominant investors can influence the publicly available information about firms by affecting the cost of information collection under strategic competition transparency results in higher variability of profits and output thus lenders prefer less transparency since this protects firms when in a weak competitive position while equity holders prefer more market interaction creates strategic complementarity in gathering information on competing firms thus entry by transparent competitors will improve price informativeness moreover as the return to information gathering increases with liquidity increasing global trading may undermine the ability of bank control to keep firms opaque

political intervention in debt contracts this paper develops a dynamic general equilibrium model of an agricultural economy in which poor farmers borrow from rich farmers because output is stochastic we allow for idiosyncratic and aggregate shocks there may be default ex post we compare equilibria with and without political intervention intervention takes the form of a moratorium and is decided by voting when bad economic shocks are highly likely state contingent debt moratoria always improve ex post efficiency and may also improve ex ante efficiency moreover the threat of moratoria enhances efficiency when adverse macro shocks are unlikely state contingent moratoria always improve ex ante welfare by completing incomplete debt contracts

imperfect competition and basing point pricing i introduction basing point pricing occurs when firms that are geographically differentiated use a common location to formulate the transportation costs and thus delivered prices charged to consumers consumers are not generally permitted to purchase the commodity at free on board mill prices since such prices exist only for firms located at the basing point basing point pricing is sometimes associated with other seemingly unusual practices such as cross hauling the systematic transshipment of apparently identical commodities freight absorption the shipment of identical commodities longer distances at delivered prices that do not reflect additional transportation charges and phantom freight the assessment of fictitious transportation charges basing point pricing has a rich history in the united states and more recently was widely practiced by firms in the softwood plywood industry 1 economists have long been interested in the determinants of basing point pricing 2 their inquires have generally led them to conclude that basing point pricing is adopted to facilitate collusion 3 this view is articulated by stigler 1949 who combined two important branches of the literature to formulate a theory of how basing point pricing and more generally any delivered pricing system can solve the problems of cartel instability confronting firms that are geographically differentiated and face stochastic demand 4 examining the case of multiple production centers with limited numbers of firms serving geographically uncertain demand stigler 1949 1148 argued that the unpremeditable flexibility of mill prices would make it extremely difficult to maintain collusion among firms at the production center and even more difficult to maintain collusion between firms at different production centers the systematic freight absorption associated with any delivered pricing system provides a solution to these problems with a delivered pricing system there is a single price at each point in the market if transportation charges are agreed upon so price rivalry is eliminated one production center can sell in the natural territories of other production centers when this is necessary to obtain its share of the industry s sales these distant sales involve freight absorption moreover and are therefore partly self limiting the various prices need not change often so collusion is possible given the unstable geographical pattern of demand and the antitrust laws systematic freight absorption permitted efficient collusion stigler also provided some evidence such as the general magnitude of demand variability in those industries characterized by basing point pricing to support his hypothesis that delivered prices and basing point pricing facilitate collusion building upon stigler s theory mcgee 1954 argued that cross hauling is a symptom of the collusion facilitated by basing point pricing in a recent paper haddock 1982 challenged this view and argued that basing point pricing can arise if a firm at other than the base site takes the delivered price of the basing point product as given when formulating its production decision given this behavior a non base site firm faces a kinked marginal revenue schedule that supports basing point pricing for a wide range of marginal production and transportation cost schedules the non base firm earns a markup on its product in a particular market equal to the difference between the delivered price charged by base site firms and the non base site firm s costs of production and delivery the behavior and markups earned by firms located at the base point are not restricted in haddock s model and presumably can include bertrand behavior and competitive markups the behavior of non base site firms is explicitly monopolistic haddock also provided some non collusive rationales for cross hauling in contrast to the view that basing point pricing is adopted to facilitate collusion among all firms in the industry haddock s argument is that basing point pricing can have little to do with pervasive collusion and may at most be associated with positive markups and phantom freight charges by firms on the periphery of production

islamic banking and finance recent empirical literature and directions for future research this paper examines the recent empirical literature in islamic banking and finance highlights the main findings and provides a guide for future research early studies focus on the efficiency production technology and general performance features of islamic versus conventional banks whereas more recent work looks at profit and loss sharing pls behaviour competition risks as well as other dimensions such as small business lending and financial inclusion apart from key exceptions the empirical literature suggests no major differences between islamic and conventional banks in terms of their efficiency competition and risk features although small islamic banks are found to be less risky than their conventional counterparts there is some evidence that islamic finance aids inclusion and financial sector development results from the empirical finance literature dominated by studies that focus on the risk return features of mutual funds finds that islamic funds perform as well if not better than conventional funds there is little evidence that they perform worse than standard industry benchmarks some recent evidence however suggests that islamic bond sukuk issuance destroys value for shareholders

payday loans and credit cards new liquidity and credit scoring puzzles using a unique dataset matched at the individual level from two administrative sources we examine household choices between liabilities and assess the informational content of prime and subprime credit scores in the consumer credit market first more specifically we assess consumers effectiveness at prioritizing use of their lowest cost credit option we find that most borrowers from one payday lender who also have a credit card from a major credit card issuer have substantial credit card liquidity on the days they take out their payday loans this is costly because payday loans have annualized interest rates of at least several hundred percent though perhaps partly explained by the fact that borrowers have experienced substantial declines in credit card liquidity in the year leading up to the payday loan second we show that fico scores and teletrack scores have independent information and are specialized for the types of lending where they are used teletrack scores have eight times the predictive power for payday loan default as fico scores we also show that prime lenders should value information about their borrowers subprime activity taking out a payday loan predicts nearly a doubling in the probability of serious credit card delinquency over the next year this abstract was borrowed from another version of this item

loan loss provisions bank valuations and discretion a comparative study between conventional and islamic banks this study investigates the use of reported loan loss provisions llp by investors in their valuations of banks within the middle east and north africa region between the years 2006 and 2011 we decompose llp into discretionary and non discretionary components to test for differential valuations in the two banking sectors we use alternative criteria to define the components of llp in banks loan quality size and earnings management manipulation incentives we employ a price level valuation model estimated using two stage analyses we find that llp has positive value relevance to investors in both banking sectors investors in islamic banks price the discretionary component relatively lower than their conventional counterparts we attribute this result to differences in product and governance structures as well as to the religious perception of islamic banking in both banking sectors investors construe an increase in the non discretionary component as irrelevant valuation information our results are relevant to bank regulators in showing the signalling effect of llp to bank value and stability

interest rate restrictions in a natural experiment loan allocation and the change in the usury laws in 1714 this article studies the effects of interest rate restrictions on loan allocation the british government tightened the usury laws in 1714 reducing the maximum permissible interest rate from 6 to 5 a sample of individual loan transactions reveals that average loan size and minimum loan size increased strongly while access to credit worsened for those with little social capital collateralised credits which had accounted for a declining share of total lending returned to their former role of prominence our results suggest that the usury laws distorted credit markets significantly we find no evidence that they offered a form of pareto improving social insurance almost since the beginning of recorded history usury restrictions have been widely used the laws of hammurabi from the 2nd millennium bc regulated interest rates as did the old testament and the catholic church while early rules often outlawed the taking of interest altogether later restrictions stipulated maximum permissible interest rates to the present day many developing and islamic countries and us states impose limits on private loan contracts to stamp out predatory lending by credit sharks only recently italy re introduced a law against usurious credit contracts glaeser and scheinkman 1998 blitz and long 1965 homer and sylla 1996 the effects of usury regulation have remained controversial numerous scholars have argued that they had damaging consequences and that this conclusion applies to both

social insurance commitment and the origin of law interest bans in early christianity abstract despite the historical importance of ideology based economically inhibitive laws we know little about the economic factors underlying their origin this paper accounts for the historical emergence of one such law the christian ban on taking interest a doctrine that shaped the evolution of numerous financial contracts and related organizational forms a game theoretic analysis and historical evidence suggest that the church s commitment to providing social insurance for its poorest constituents encouraged risky borrowing which the church attempted to limit by banning interest the analysis highlights the applicability of the rational choice framework to seemingly irrational actions and laws the role of nonmonetary sanctions in circumventing commitment problems and the importance of economic forces vis a vis ideology

the effects of usury laws evidence from the online loan market abstract usury laws cap the interest rates that lenders can charge using data from prosper com an online lending marketplace i investigate the effects of these laws the key to my empirical strategy is that there was initially substantial variability in states interest rate caps ranging from 6 to 36 a behind the scenes change in loan origination however suddenly increased the cap to 36 the main findings of the study are that higher interest rate caps increase the probability that a loan will be funded especially if the borrower was previously just outside the money i do not find however changes in loan amounts and default probability the interest rate paid rises slightly probably because online lending is substantially yet imperfectly integrated with the general credit market

usury laws and consumer credit a note much has been written on the potential effects of rate ceilings on consumer credit markets 1 and numerous empirical studies have analyzed the impact of rate ceilings on mortgage loans and housing construction markets 2 however the actual effect of loan rate ceilings on consumer financial markets in general has not been well documented in part because credit terms are complex so the credit offer function has several arguments notwithstanding the potential complexity of credit terms it is usually assumed that if a rate ceiling reduces the nominal price of credit p the market will fail to clear and excess credit demand will need to be rationed out of the market by adjusting credit terms other than the rate in this context most investigators assume first that the price of credit is solely a function of the interest rate r and second that required credit rationing is conducted by suppliers who reject risky customers or alter credit terms to reduce risk when credit obtained at the retail point of sale is considered however more options are available in particular the price of goods purchased with credit can be raised 3 thus a more general model of consumer credit would note that p p r pr where pr the price premium on goods purchased with credit since funds are highly fungible it is likely that consumers are able to substitute retail originated credit for other sources of consumer credit at low cost if portfolio adjustment costs were zero a rate ceiling could have no effect on consumer s total indebtedness as any decrease in r could be exactly offset by an increase in pr at retail credit sources so that p would remain unchanged however it is unlikely that all consumer credit needs can be met by obtaining retail credit so that consumer use of credit may be reduced by rate ceilings this would occur if consumers bore adjustment costs such as transportation costs when they switched from cash to retail credit sources that suppliers did not receive the question then arises whether when retail credit is available adjust

money does not grow on trees an argument for usury usury charging a higher interest rate than thought by some to be fair has had and still has a bad press historically it was heavily punished it was then and all too often is now thought to be exploitative yet as even the most economically unsophisticated must realize both sides of these transactions must necessarily gain at least in the ex ante sense otherwise one or the other would refuse to enter into the deal in the first place the present paper is an attempt to justify the practice of charging interest on loans at any rate agreeable to both borrowers and lenders

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

the real costs of credit access evidence from the payday lending market using geographic differences in the availability of payday loans i estimate the real effects of credit access among low income households payday loans are small high interest rate loans that constitute the marginal source of credit for many high risk borrowers i find no evidence that payday loans alleviate economic hardship to the contrary loan access leads to increased difficulty paying mortgage rent and utilities bills the empirical design isolates variation in loan access that is uninfluenced by lenders location decisions and state regulatory decisions two factors that might otherwise correlate with economic hardship measures further analysis of differences in loan availability over time and across income groups rules out a number of alternative explanations for the estimated effects counter to the view that improving credit access facilitates important expenditures the results suggest that for some low income households the debt service burden imposed by borrowing inhibits their ability to pay important bills copyright 2011 oxford university press

bank runs in emerging market economies evidence from turkey s special finance houses recent banking crises in emerging market countries have renewed debates about deposit insurance because insurance erodes banks incentives to manage risks prudently some argue that its elimination would improve bank stability yet eliminating insurance could be de stabilizing if it recreates risks of self fulfilling runs this paper examines dynamics of depositor behavior during a set of runs on turkey s special finance houses an uninsured sub sector of islamic banks detailed data on withdrawals are analyzed in a vector autoregressive framework that enables us to distinguish between informational and self fulfilling elements of runs we found that both types of dynamics were at work during the runs suggesting a role for deposit insurance judiciously used in ruling out expectational problems that fuel tendencies to run

conflicts of interest the ethics of usury social attitudes toward usury here defined using the archaic meaning as the taking of interest on loans have changed dramatically over the centuries from antiquity until the protestant reformation usury was regarded as an inherently evil activity today with few exceptions usury is met with moral indifference modern objections to usury are limited to protest against excessive interest rates rather than interest per se with this change in focus the very meaning of the term usury has also changed many early pronouncements against the taking of interest emphasized the plight of the poor but ironically the poor actually pay the highest rates of interest in the modern american economy despite the universality of usury some socio economic subcultures still manage to avoid the taking or giving of interest orthodox branches of both judaism and islam have maintained bans on usury throughout the centuries and up to the present time this is especially interesting in the case of judaism given the popular cultural image of the jew as usurer jewish free loan systems may actually offer a model for modern loan programs that can be designed to aid poor borrowers who are frequently shut out of mainstream financial services

inefficiency and heterogeneity in turkish banking 1990 2000 recent studies have stressed the importance of privatization and openness to foreign competition for bank efficiency and economic growth we study bank efficiency in turkey an emerging economy with great heterogeneity in bank types and ownership structures earlier studies of turkish banking had three limitations i excessive reliance on cost function frontier analyses wherein volume of loans is a measure of banking output ii pooling all banks or imposing ad hoc heterogeneity assumptions and iii lack of a comprehensive panel data set for proper analysis of productivity and heterogeneity we use an estimation classification procedure to find likelihood driven classification of bank technologies in an 11 year panel in addition we augment traditional cost frontier analysis with a labour efficiency analysis we conclude that state banks are not particularly inefficient overall but that they do utilize labour inefficiently this partially supports recent calls for privatization we also conclude that special finance houses or islamic banks utilize the same technology as conventional domestic banks and do so relatively efficiently this suggests that they do not cause harm to the financial system finally we conclude that foreign banks utilize a different technology from domestic ones this suggests that one should not overstate their value to the financial sector copyright 2005 john wiley sons ltd

single name credit risk portfolio risk and credit rationing this paper introduces non diversifiable risk in the stiglitz weiss adverse selection model so that an increase in the average riskiness of the borrower pool causes higher portfolio risk this opens up the possibility of equilibrium credit rationing comparative statics analysis shows that an increase in risk aversion turns a two price equilibrium into a rationing equilibrium a two price equilibrium is more inefficient than a rationing equilibrium and a usury law that rules out the higher of the two interest rates can be welfare improving contrary to the common result the equilibrium may be characterized by over investment

islamic economics and the islamic subeconomy although islamic economics was developed to serve cultural and political ends efforts have been made to put its ideals into practice there now exist islamic banks which claim to offer an interest free alternative to conventional banking and government run islamic redistribution systems which were established to reduce inequalities these institutions have not revolutionized the economic lives of muslims yet along with a wide variety of enterprises that have emerged outside the purview of islamic economics they have formed vibrant islamic subeconomies in numerous metropolises these subeconomies are expanding because they foster interpersonal trust and offer opportunities for guilt relief

and a vision appeared unto them of a great profit evidence of self deception among the self employed evidence is presented that the self employed expect better financial outcomes than do employees but experience worse realisations this is consistent with theories that entrepreneurship is driven by unrealistic optimism

club goods and group identity evidence from islamic resurgence during the indonesian financial crisis this paper tests a model in which group identity in the form of religious intensity functions as ex post insurance i exploit relative price shocks induced by the indonesian financial crisis to demonstrate a causal relationship between economic distress and religious intensity koran study and islamic school attendance that is weaker for other forms of group identity consistent with ex post insurance credit availability reduces the effect of economic distress on religious intensity religious intensity alleviates credit constraints and religious institutions smooth consumption shocks across households and within households particularly for those who were less religious before the crisis

does the size of islamic banking matter for industry growth international evidence islamic banking which has witnessed unprecedented growth in the last quarter of the century is hypothesized to be able to contribute to the development of the financial sector and thus to economic

how does public assistance affect family expenditures the case of urban china summary using recent national household survey data and a propensity score matching method this study examines the effects of urban china s primary public assistance program minimum living standard assistance mlsa on family expenditures an important yet understudied indicator of family material well being we find that families receiving mlsa prioritized human capital investment i e paying for education and health rather than making the ends meet e g paying for food clothing rent and utilities the policy implications of these findings are discussed

in defense of usury laws usury law is often criticized by economists for curtailing lending and thus creating deadweight costs this paper shows that if moral hazard leads to credit rationing a just binding usury law creates a deadweight gain this property also holds in most market clearing equilibria independent of social insurance benefits or curbing present biased preferences interest rate caps have merit

the impact of interest rate ceilings on households credit access evidence from a 2013 chilean legislation abstract this study analyzes the impact of a legislation introduced in chile in 2013 which gradually reduced the maximum legal interest rate for consumer loans from 54 to 36 using a representative sample of households that matches survey data and banking loan records i compare consumers with risk adjusted interest rates slightly above and slightly below the legal interest rate ceiling two groups of similar characteristics but who are differently affected by the law after accounting for both macroeconomic shocks and unobserved household heterogeneity the results show that being above the interest rate cap reduces the probability of credit access by 8 7 on average a counterfactual exercise shows that the new legislation excluded 9 7 of the borrowers from banking consumer loans the law s impact was strongest on the youngest least educated and poorest families finally i show that the new law affected all lenders of consumer loans in chile not just banks

islamic banks and investment financing islamic law prohibits charging interest we study financial instruments used by islamic banks and find that most are not based on profit and loss sharing equity but instead are very debt like in nature we see some bias against providing financing for agriculture and industry long term financing is rarely offered to entrepreneurs our model shows that debt like instruments are a rational response by islamic banks to their contracting environments as agency problems become more severe debt becomes the dominant instrument of finance we give conditions under which banning debt increases social welfare as well as conditions under which banning debt decreases social welfare

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

demand and supply side determinants of conditional cash transfer program effectiveness summary the programa nacional de becas estudiantiles is a conditional cash transfer program designed to promote human capital accumulation and reduce poverty among argentine youth this study follows a 1999 cohort of students for five years and uses matching methods with a comparison group of students excluded due to quotas to estimate average and marginal program impacts multilevel methods are used to explore the role of program management and execution in explaining variation between schools in student outcomes the results suggest that the becas program improved students attendance and performance in part through program conditions requiring good attendance and academic progress for continued scholarship receipt

earnings management behaviors under different monitoring mechanisms the case of islamic and conventional banks abstract we investigate the impact of organizational religiosity on the earnings quality of listed banks in the middle east and north africa region we analyze islamic banking institutions which operate within strict religious norms and extended accountability constraints and compare them with their conventional counterparts during 2008 2013 we find that islamic banks are less likely to manage earnings and that they adopt more conservative accounting policies based on these findings we argue that religious norms and moral accountability constraints in these organizations have a significant impact on financial reporting quality and agency costs which have implications for both regulators and market participants

life cycle schooling and dynamic selection bias models and evidence for five cohorts of american males this paper examines an empirical regularity found in many societies that family influences on the probability of transiting from one grade level to the next diminish at higher levels of education we examine the statistical model used to establish the empirical regularity and the intuitive behavioral interpretation often used to rationalize it we show that the implicit economic model assumes myopia the intuitive interpretive model is identified only by imposing arbitrary distributional assumptions onto the data we produce an alternative choice theoretic model with fewer parameters that rationalizes the same data and is not based on arbitrary distributional assumptions

pawnbroking in america the economics of a forgotten credit market this paper surveys the role of pawnbroking in u s credit markets among the findings are pawnshops provide very small secured loans to millions of low income americans excluded from bank and finance company credit most states regulate pawnshop finance charges with the majority setting ceilings between 36 and 240 percent apr over the past century pawnbroking has grown dramatically in the southern and central mountain states while shrinking in the northeast this article offers explanations for these trends as well as for the recent nationwide boom in the industry copyright 1991 by ohio state university press

social protection 2 0 exploring issues evidence and debates in a globalizing world abstract this paper reviews the growing literature on social protection while not new the concept evolved remarkably in recent years it is approached from a multitude of perspectives and intersects with broader bodies of literature particularly around public policy pro poor growth rights humanitarian strategies and aid effectiveness as well as feeding into specific programmatic issues e g conditionality targeting and transfer selection this blend of challenges and approaches has often made debates elusive and polarized the paper examines the evolution and definitions of social protection and unbundles critical policy institutional and implementation quandaries taken together these considerations shape a set of context specific models of social protection the paper s five core conclusions may help chart future directions for social protection research and practice

does islamic finance spur banking sector development abstract islamic finance is one of the most prominent phenomena over the last decade in the banking industry in the middle east and south east asia in spite of the substantial size and growth of this segment recently the role of islamic banking in the economy is still heavily debated and very few empirical work is available this paper studies the empirical impact of islamic banking on banking sector development it circumvents the lack of data through a newly constructed and comprehensive database ifirst covering islamic commercial banks worldwide over the period 2000 2005 this database is to our knowledge unique in the industry we find strong and consistent empirical evidence that the development of islamic banking in muslim countries leads to a higher banking sector development as measured by the amount of private credit or bank deposits scaled to gdp this effect occurs through the development of a new shariah compliant banking industry which does not crowd out the conventional banking system additionally we provide evidence that the islamic banking sector acts as a complement to the conventional banking in muslim countries when both systems co exist and the islamic sector reaches a medium penetration in the total banking sector

imperfect competition and basing point pricing evidence from the softwood plywood industry the federal trade commission s action to eliminate basing point pricing in the soft plywood industry during the mid 1970s created a natural experiment the author finds that the ftc s action had no effect on the delivered price of the base site product douglas fir plywood but decreased the delivered price of the non base site product pine plywood for many consumers the evidence suggests that the detrimental effects of basing point pricing for economic welfare were reflected entirely in the behavior of non base site firms copyright 1992 by american economic association

sharing contracts marginalisation adverse selection and markup calculation this paper proposes a new approach to explain the dominance in the islamic banking market of markup contracts at the expense of sharing ones we show that the dual pricing practised in this market produces an additional or artificial dimension of adverse selection which is causing the sharing contracts marginalization we suggest specialized use of two islamic contractual categories as a device for eliminating artificial adverse selection we suggest also an endogenous calculation of the markup that is independent of the interest rate based on the financing cost unification this approach allows the deduction of default and liquidity risk premiums

introduction to the economics of religion after a very long hiatus economists have begun again to study the relationship between economics and religion this article seeks to summarize and evaluate the principal themes and empirical findings that have appeared in some 200 recent papers on the economics of religion although some of the research concerns the economic consequences of religiosity most applies standard economic theory to the study of individual religious activity the characteristics of religious groups and the impact of regulation and competition on religious markets

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

the impact of school quality on earnings and educational returns evidence from a low income country abstract the expansion of education has been widely adopted as a key element in the development strategies of low income countries while there is substantial evidence on the benefits of greater educational attainment for subsequent labor market earnings empirical evidence on the role played by school quality is scarce this paper combines household survey data with unique data on school quality from honduras to study the importance of school quality as a determinant of earnings our objective measures of school quality capture teacher training school infrastructure and school crowding the results display strong positive effects of school quality on earnings and on educational returns these effects persist across a variety of model specifications

ethical issues in bankruptcy a jewish perspective the ethical issues involved in bankruptcy affect the debtor the creditor and the society in which they operate facing the debtor is his responsibility to pay back the loans and credit extended to him while the creditor has to decide whether or not to press his legal rights irrespective of the consequences to the debtor society will have to determine to what extent if any it is prepared or obligated to fund the rehabilitation of the debtor and those employees whose employment is terminated as a result of the bankruptcy these issues will be determined according to the value structure of the particular souly in which debtor and creditor operate this paper views the issues in a jewish perspective debtors are considered to always be liable for their debts and there is a moral shame attached to bankruptcy except in those cases where it is caused by natural disasters while creditors are taught and encouraged to voluntarily waive their rights this is considered charity with all its negative overtones the courts are obligated to review the debtors assets and sell them if necessary to meet the creditors loans leaving only basic necessities for minimal living of the debtor and his family society however including the creditor a part of the group are obligated to fund the rehabilitation of the debtor either through its interest free loan charity or the provision of alternative employment these may be funded out of communal taxes

neither a borrower nor a lender be an economic analysis of interest restrictions and usury laws interest rate restrictions are pervasive and important regulations this article suggests that these restrictions served in part as a primitive means of social insurance lowering the rate of interest effectively transfers income to states of the world where individuals have a high marginal utility of income and are borrowers from states of the world where individuals have a low marginal utility of income and are lenders the model predicts that interest rate restrictions will be tighter when income inequality is high and impermanent and when growth rates are low furthermore loan supply must be somewhat inelastic data from u s states support a connection between inequality income shocks and tighter usury laws usury laws were also stricter in older more stable communities the history of usury laws suggests that this social insurance mechanism is one reason usury laws exist and persist but this history also suggests that usury laws have played many roles across time and that no one theory can po

how payday credit access affects overdrafts and other outcomes despite a dozen studies the welfare effects of payday credit are still debatable we contribute new evidence to the debate by studying how payday credit access affects bank overdrafts such as returned checks bankruptcy and household complaints against lenders and debt collectors we find some evidence that chapter 13 bankruptcy rates decrease after payday credit bans but where we find that we also find that complaints against lenders and debt collectors increase the welfare implications of these offsetting movements are unclear our most robust finding is that returned check numbers and overdraft fee income at banks increase after payday credit bans bouncing a check may cost more than a payday loan so this finding suggests that payday credit access helps households avoid costlier alternatives while our findings obviously do not settle the welfare debate over payday lending we hope they resolve it to some extent it by illuminating how households rearrange their financial affairs when payday loan supply changes

impacts of interest rate caps on the payday loan market evidence from rhode island abstract interest rate caps are the most common form of payday loan regulation yet little academic research has examined their consequences i investigate the impacts of tightening the cap from 15 to 10 in rhode island using a difference in difference framework and a unique proprietary dataset of payday loans issued by major nationwide lenders between 2009 and 2013 lenders always charge the prevailing cap creating a sharp and clean variation in interest rate i show that loan usage increases at the extensive and intensive margins amounting to elasticity estimates in the range of 0 7 1 0 i also find that loan sequences become longer and more likely to end with default no lenders exit the market implying that market power existed furthermore i find no evidence of credit rationing as a result of the lower cap these changes imply an upper bound of 3 3 million per year for neoclassical consumer surplus however i show that behavioral consumers can be worse off by the policy if more than half of the increase in demand is due to overborrowing

behavioral norms in the islamic doctrine of economics a critique abstract at the heart of the contemporary islamic doctrine of economics lies a set of behavioral norms derived from the first islamic society in seventh century arabia this paper demonstrates that these norms cannot be expected to serve as the spearhead of a drive for modern economic development for one thing the proposed norms are unlikely to enjoy widespread adherence in large societies where it is difficult to achieve a common perception of reality elicit generalized altruism and overcome the free rider problem secondly many islamic norms are ambiguous and some interfere with institutions designed to improve the workings of markets

should transfers to poor families be conditional on school attendance a household bargaining perspective this article considers the welfare implications of transfers to poor families that are conditional on school attendance and other forms of investment in children s human capital family decisions are assumed to be the result of generalized nash bargaining between the two parents we show that as long as bequests are zero conditional transfers are better for children than unconditional transfers the mother s welfare may also be improved by conditional transfers thus conditioning transfers to bequest constrained families have potentially desirable intergenerational and intragenerational welfare effects conditioning transfers to unconstrained families make every family member worse off

delivered pricing and multiple basing point equilibria a reevaluation this paper examines delivered pricing with systematic freight absorption in the light of the modern theory of spatial competition delivered pricing multiple basing point equilibria are compared with f o b mill pricing equilibria under a variety of assumptions about market structure and firms conjectural variations it is shown that there is no clear reason for preferring f o b pricing or delivered pricing in the abstract delivered pricing is likely to be preferable from the consumer s standpoint either if the conjectural variations of the firms are high or if conjectural variations are consistent and there are few firms in the industry

retrospectives from usury to interest since the middle ages each epoch has participated in the debate over the conditions in which lending should be prohibited as usury while disagreements over the definition of usury remain the debate came to its modern climax on the eve of the industrial revolution in a well known interchange between jeremy bentham and adam smith in the late 1780s smith for all his faith in a system of natural liberty proved unwilling to let the interest rate float bentham argued anything else must reduce total welfare from a superficial perspective the entire affair amounts to nothing more than a modest dispute between a failing master smith died in 1790 and an over eager disciple bentham acknowledged in the defence that all he knew of political economy originated in smith s works yet the argument struck a fundamental chord gilbert k chesterton identified bentham s essay on usury as the very beginning of the modern world i tend to agree

when and why usury should be prohibited usury ceilings seem indefensible their opponents insist these caps harm the consumers they are intended to help low ceilings are said to prevent the least advantaged agents from accessing legal credit and drive them into the black market where prices are higher and collection methods are harsher but in this paper i challenge these arguments and show that the benefits of interest rate limitations in the most expensive credit markets clearly outweigh the costs the test case is payday lending deregulated pricing in this market produces negative externalities that justify usury restrictions unless prices are capped the more solvent majority of borrowers is compelled to cross subsidize the least solvent debtors who have a high rate of default rationing the riskiest debtors out of this market by means of a moderate usury cap puts an end to this unfairness and produces fewer bad consequences than the advocates of deregulated pricing recognize i argue that only an extreme principle like maximizing the minimum could justify a free market in payday credit

vouchers for private schooling in colombia evidence from a randomized natural experiment colombia used lotteries to distribute vouchers which partially covered the cost of private secondary school for students who maintained satisfactory academic progress three years after the lotteries winners were about 10 percentage points more likely to have finished 8th grade primarily because they were less likely to repeat grades and scored 0 2 standard deviations higher on achievement tests there is some evidence that winners worked less than losers and were less likely to marry or cohabit as teenagers benefits to participants likely exceeded the 24 per winner additional cost to the government of supplying vouchers instead of public school places

how islamic is islamic banking abstract islamic banks hold well over us 700 billion in assets and are growing at over 15 p a islamic banking and finance ibf involves wider ethical and moral issues than simply interest free transactions its advocates argue that these make it more economically efficient than conventional banking and promote greater economic equity and justice to what extent then do actual islamic banking practices live up to the ideal and how different are they from conventional banking a preliminary investigation shows that three decades after its introduction there remain substantial divergences between ibf s ideals and its practices and much of ibf still remains functionally indistinguishable from conventional banking this runs counter to claims by ibf advocates that it would rapidly differentiate itself from conventional banking however despite not providing an alternative to conventional banking and finance ibf does strengthen a distinctly islamic identity by providing the appropriate islamic terminology for de facto conventional financial transactions

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

household inequality entrepreneurial dynamism and corporate financing economic theories provide conflicting hypotheses on how wealth inequality affects entrepreneurial dynamism to empirically investigate its impact we construct local measures of household wealth inequality based on financial rents home equity and 1880 farmland we identify its effects on entrepreneurship by instrumenting it with land distribution under the 1862 homestead act or us states removal of death taxes wealth inequality decreases firm entry and exit and the proportion of high tech businesses across metropolitan statistical areas there is also less redistribution into public goods supportive of entrepreneurship such as schooling and the judiciary income per capita consequently grows more slowly

default and renegotiation a dynamic model of debt we analyze the role of debt in persuading an entrepreneur to pay out cash e ows rather than to divertthem in the e rstpartof the paper we study the optimal debt contract specie cally the trade off between the size of the loan and the repayment under the assumption that some debt contract is optimal in the second part we consider a more general class of nondebt contracts and derive sufficient conditions for debt to be optimal among these

delivered pricing fob pricing and collusion in spatial markets in this situation the choice variable for the firm is a price system that specifies a price per unit of product at each location each firm must choose a function p x where x is the distance between the location of the consumer and the location of the firm in practice different industries use different types of pricing systems p x and this suggests that the prevailing pricing system depends on the structural elements of the market when the pricing policy is fob consumers can pick up the product at the mill paying the mill price p and incurring the transportation cost from the producer s to the consumer s location i e p x p t x or the seller may deliver the good to the buyer s location as long as it charges mill price plus transportation costs delivered pricing policies are pricing rules p x that are not based on consumers picking up the product at the mill the firm delivers the product at the consumer s location in a perfectly competitive world with a continuum of firms an fob pricing system would be expected p x c t x where c is the marginal cost of production in the case of a market with two firms located at the

debt and seniority an analysis of the role of hard claims in constraining management we argue that long term debt has a role in controlling management s ability to finance future investments a company with high widely held debt will find it hard to raise capital since new security holders will have low priority relative to existing creditors conversely for a company with low debt we show there is an optimal debt equity ratio and mix of senior and junior debt if management undertakes unprofitable as well as profitable investments we derive conditions under which equity and a single class of senior long term debt work as well as more complex contracts for controlling investment behavior

sri lanka can conditional cash transfer programs serve as safety nets in keeping children at school and from working when exposed to shocks this brief summarizes the results of a gender impact evaluation study can conditional cash transfer cct programs serve as safety nets in keeping children at school and from working when exposed to shocks conducted the program started in 1997 and still exists today in sri lanka the study observed that income shocks on poor households are known to induce parents to take their children out of school and send them to work when other risk coping instruments are insufficient cct programs where the condition is on school attendance have been shown to be effective in increasing educational achievements and reducing child work shocks are highly prevalent and children have irregular periods of school enrollment children who are taken out of school are less likely to re enroll

public education and pensions in democracy a political economy theory a dynamic political economy theory of scal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies the driving force of the model is the intergenerational conict over the allocation of the public budget successive generations of voters choose scal policies through repeated elections the political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities we characterize the markov perfect equilibrium of the voting game in a small open economy the equilibrium reproduces salient features of intergenerational