We model the different ways in which precedents and contract standardization shape the development of markets and the law. In a setup where more resourceful parties can distort contract enforcement to their advantage, we find that the introduction of a standard contract reduces enforcement...

In a model where biased judges can distort contract enforcement, we uncover positive feedback effects between the use of innovative contracts and legal evolution that improve verifiability and contracting over time. We find, however, that the cost of judicial bias also grows over time because...

We use data from a randomized controlled trial conducted in 2003-2006 in rural Amhara and Oromiya (Ethiopia) to study the impacts of the introduction of microfinance in treated communities. We document that borrowing increased substantially in locations where the programs started their...

The use of debt to finance risky entrepreneurial-firm projects is rife with informational and contracting problems. Nonetheless, we document widespread lending to startups in three innovation-intensive sectors and in early stages of development. At odds with claims that the secondary patent...

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...

We analyze recent contributions to growth theory based on the model of expanding variety of Romer (1990). In the first part, we present different versions of the benchmark linear model with imperfect competition. These include the “labequipment” model, labor-for-intermediates” and...

We study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts. Because of enforceability problems, contracts are constrained efficient. We show that limited enforceability amplifies the impact of technological innovations on aggregate output....

Foreign aid provides a windfall of resources to recipient countries and may result in the same rent seeking behavior as documented in the “curse of natural resources” literature. In this paper we discuss this effect and document its magnitude. Using data for 108 recipient countries in the...

Most US credit card holders revolve high-interest debt, often combined with substantial (i) asset accumulation by retirement, and (ii) low-rate liquid assets. Hyperbolic discounting can resolve only the former puzzle (Laibson et al., 2003). Bertaut and Haliassos (2002) proposed an...

This paper presents empirical support for the existence of wealth effects in the contribution of financial intermediation to economic growth, and offers a theoretical explanation for these effects. Using GMM dynamic panel data techniques applied to study the growth-promoting effects of financial...