London School of Economics EOPP: Economic Organisation and Public Policy Programme LSE
EOPP: Economic Organisation and Public Policy Programme

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The de Soto Effect

Timothy Besley, Maitreesh Ghatak, April 2009
Paper No' EOPP 008: | Full paper (pdf)
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This Paper is published under the following series: Economic Organisation and Public Policy Discussion Papers
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Abstract:

This paper explores the consequences of creating and improving property rights so that fixed assets can be used as collateral. This has become a cause célèbre of Hernando de Soto whose views are influential in debates about policy reform concerning property rights. Hence, we refer to the economic impact of such reforms as the de Soto effect. We explore the logic of the argument for credit contracts, both in isolation, and in market equilibrium. We show that the impact will vary with the degree of market competition. Where competition is weak, it is possible that borrowers will be worse off when property rights improve. We discuss the implications for optimal policy and the political economy of policy reform.