In Defense of Usury Laws |
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| Authors: | GIUSEPPE COCO DAVID DE MEZA† |
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| Institution: | Giuseppe Coco; is an Associate Professor of Economics at Dipartimento di Scienze Economiche e Metodi Matematici, Universitàdi Bari, and a Member of the Simplification Unit, Prime Minister Office, Italy (E-mail: ). David De Meza; is the Eric Sosnow Professor of Management and Head of the Managerial Economics and Strategy Group at the London School of Economics (E-mail: ). |
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| Abstract: | 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. |
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| Keywords: | G14 G28 K23 L51 |
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