Sao Paulo Law School (Direito SP) professor, Bruno Salama, presented the paper titled “Contingent judicial deference: theory and application to usury laws” at the American Association of Law and Economics, which took place at Yale on May 13. The paper was co-written by Bernardo Guimarães, Sao Paulo School of Economics (EESP) professor.

By combining legal and economic knowledge, the authors proposed a model that allows analyzing the implications of certain court rulings and laws within the economic environment, based on the premise that judges consider their own personal experiences and opinions before applying the law in actual cases. This occasionally leads the practical effect of a certain law to have the opposite effect expected by the legislator.

This scenario is exemplified in the case of limitations applied to interest rates charged – the so-called “usury laws”. Within certain parameters, the establishment of these types of limits may prompt an expansion in credit markets. Hence, what was originally intended as a prohibition can ultimately become an enabling factor within the interest rate limits tolerated by the legislator. The empirical motivation of this model comes from Salama’s paper titled "Spread Bancário e Enforcement Contratual: Hipótese de Causalidade Reversa e Evidência Empírica” [Banking Spread and Contractual Enforcement: Hypothesis of Reversal Causality and Empirical Evidence], available in the next edition of the Brazilian Economic Journal (RBE).

The paper is available on the website.