Debtors’ prisons in America: An economic analysis

Debtors’ prisons have been commonplace throughout history, including in the United States. While imprisonment for debt no doubt elicited some repayment by benefactors of the debtor, we argue that its primary function was to deter default in the first place by giving borrowers an incentive to disclose hidden assets. Because of its cost, however, imprisonment was destined to be replaced by more efficient ways of preventing borrowers from sheltering assets. Empirical analysis of state laws banning imprisonment for debt provides some support for this argument. In particular, the results suggest that states in which the publishing industry developed sooner (thus facilitating the flow of information) were more likely to enact early bans on imprisonment for debt.

► Debtors’ prisons have been common throughout history, including the U.S.
► We argue that their primary function was to deter default or elicit disclosure of assets.
► The empirical analysis focuses on state laws that banned debtor prisons in the U.S. during the nineteenth century.
► The results suggest that states where publishing was more advanced (a proxy for better information) banned prisons sooner.