The Effects of Legal Institutions on Access to Credit: Evidence from American Indian Reservations
Abstract: This paper examines the relationship between credit markets and legal institutions by exploiting exogenous variation in jurisdiction over debt contracts on American Indian reservations. The variation is due to federal legislation, passed in 1953, giving states jurisdiction on some reservations while tribes retained their jurisdiction on other reservations. Based on evidence from historical and modern data, state jurisdiction increased per capita credit for American Indians, and their probability of having a home loan application accepted, by over 50 percent. The sovereignty that tribes have struggled long and hard to retain appears to be a liability for Native Americans seeking loans.
