Collateral Law and Enforcement Risk: Evidence from Native American Reservations

Abstract

Drawing on U.S. Native American reservations, I identify how collateral law and contract enforcement interact to shape credit and real economic activity. I exploit (i) a 2001 Supreme Court ruling that opened a pathway to state-court enforcement of commercial contracts and (ii) the staggered adoption of tribal secured transactions laws (STLs) between 1985 and 2016, which allow movable assets to be pledged as collateral. Using difference-in-differences, I find that reducing enforcement risk via the 2001 ruling increases small-business loan size by 10% where STLs preexisted. STL adoption raises loan size by 11%, with no effect before 2001. STL effects are strongest under uniform codes with centralized registries, and gains are disproportionately concentrated in ex ante wealthier reservations. STLs raise wage per worker and income per capita but not total employment. Instead, employment reallocates toward movable-asset-intensive sectors. These results provide micro evidence on the finance–growth link: complementarities between collateral law and enforcement shape how finance affects growth and who benefits across jurisdictions, sectors, and legal designs.