Dear All,

The Department of Economics invites you to their weekly seminar on Wednesday, October 29, 2025.

Time: 1:40 PM to 2:50 PM

Venue: AC-04-301

Speaker: Kriti Khanna 

Title: Credit Enforcement, Misallocation, and Income Disparities across Indian States

Abstract: This paper evaluates the role of enforcement of credit contracts in explaining the income per capita disparities across Indian states. 

Firstly, I develop and calibrate a dynamic heterogeneous-agents general equilibrium model, featuring voluntary and involuntary entrepreneurs, to capture how variation in credit contract enforcement shapes financial access, occupational choices, and the allocation of factors of production. In the model, state-specific enforcement capacity generates endogenous borrowing constraints that affect individuals' access to credit, the potential scale of firms they can operate, and the profits they can earn. Combined with labor market frictions and general equilibrium effects on wages and interest rates, these borrowing constraints jointly determine the distribution of talent, capital, and labor across production units. Improved enforcement reduces misallocation and raises aggregate productivity and output per capita. Calibrating the model for Indian states, I find that differences in credit contract enforcement explain about 6.46 percent of cross-state income disparities in 2017–18.

Secondly, I verify the model's predictions on occupational choices using microdata from the National Sample Surveys of Employment and Unemployment. I exploit cross-state variation in the effective impact of a major judicial reform aimed at expediting the resolution of civil suit cases —to estimate the causal effect of improved credit contract enforcement on individuals occupational outcomes.  Consistent with the model's general equilibrium mechanisms, I find that greater judicial efficiency is associated with a lower likelihood of voluntary entrepreneurship and a tendency toward higher shares of involuntary self-employment and wage work. 

Thanks & Regards,

Manish