I study a consumption-saving model in which consumers neglect the opportunity costs and experience a pain of paying that is decreasing and convex in the budget. The spending response to a transitory income shock can be sizable, even for liquid consumers. It is stronger for consumers with a...

This paper analyzes deterrence, settlement, and litigation spending under two alternative procedural regimes, i.e., the adversarial versus inquisitorial systems. We present a general litigation model with three sequential stages---care, settlement, and litigation stages---and we test the...

A standard view holds that removing barriers to entry and improving judicial enforcement would reduce informality and boost investment and growth. We show, however, that this conclusion may not hold in countries with a concentrated banking sector or with low financial openness. When the formal...