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Unformatted text preview: e Problem for North and Weingast is that after 1688 the majority of
members of Parliament were landowners who did not own government
debt. Why did they not default? Stasavage argues that the veto
player argument does not explain this.
Argues that this is because merchants and …nanciers who did own
debt formed a coalition in the Whig Party with landowners. The basis
was religion and foreign policy – the Whigs favored wars to …ght
France and also opposed Catholics ascending to the throne.
He argues that the fall in interest rates in the 18th century occurs
precisely when the Whig’ take over and the Tories collapse.
So more is needed than just the institutional story. James A. Robinson (Harvard) The Emergence of Modern Economic Growth: A Comparative and Historical Analysis: L
September 30, 2009
19 / 29 Interest Rates on Long-Term Government Borrowing (Source: Stasavage,
David, 2002, “Credible Commitment in Early Modern Europe: North and Weingast
Revisited,” Journal of Law, Economics, and Organization, vol.18, no.1, pp.155-186). The Interest rate Evidence
I do not think that the interest rate evidence is so damning and
probably North and Weingast were wrong to emphasize this.
We know that when the risk of default is endogenous, the king will be
credit rationed (there is an incentive compatibility constraint that
must be satis…ed). There is ample evidence that the Stuart Monarchs
were credit rationed.
What the Glorious Revolution did was to relax this incentive
constraint by making it less likely that king’ would default. This
would expand the amount that kings could borrow (lots of evidence
for this) but does not necessarily lead to a lower interest rate.
Main point is that with endogenous default risk the credit market is
not cleared by movements in the interest rate but rather by credit
rationing. James A. Robinson (Harvard) The Emergence of Modern Economic Growth: A Comparative and Historical Analysis: L
September 30, 2009
20 / 29 Economic Growth and Constitutional Regimes in Europe
There is evidence that...
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This document was uploaded on 02/28/2014 for the course ECON 2328 at Harvard.
- Fall '09