CrimProf Blog

Editor: Kevin Cole
Univ. of San Diego School of Law

Friday, June 24, 2022

Leong et al. on Loan Sharks, Law Enforcement, and Welfare

Kaiwen LeongHuailu LiNicola Pavanini and Christoph Walsh (Nanyang Technological University (NTU), Fudan University, School of Economics, Tilburg University and Tilburg University - Tilburg University School of Economics and Management) have posted The Welfare Effects of Law Enforcement in the Illegal Money Lending Market on SSRN. Here is the abstract:
We estimate a structural model of borrowing and lending in the illegal money lending market using a unique panel survey of 1,090 borrowers taking out 11,032 loans from loan sharks. We use the model to evaluate the welfare effects of alternative law enforcement strategies. We find that a large enforcement crackdown that occurred during our sample period raised interest rates, lowered the volume of loans, increased the lenders' unit cost of harassment, decreased lender profits, and decreased borrower welfare. We compare this strategy to targeting borrowers and find that targeting medium-performing borrowers is the most effective at lowering lender profits.

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