Preliminary Draft: Please Do Not Quote or Cite The Whip of Singapore: Can Tough Legal Enforcement Entice Criminal Extortion? ∗ Kaiwen Leong,† Huailu Li‡and Haibo Xu§ Abstract Using a unique dataset, we study the unlicensed money lending market in Singapore. In this market, borrowers search for loan sharks to borrow from, and loan sharks decide how much money to extort from borrowers. At equi- librium, we observe dispersion over the degree of extortion by different loan sharks. We find that when the authorities increase enforcement efforts specif- ically targeted at reducing the number of loan sharks in this market, these efforts have, on average, the following effects: The initial interest rate on the loan agreed upon by both the loan sharks and the borrowers increases, the loan amount that the loan shark is willing to lend to the borrower decreases, the amount of money the loan shark extorts from the borrower increases and the loan shark’s harassment activities against the borrower remains unchanged. ∗We are very grateful to Jingying Bi, Shaqiri, Pun Shu Fen and Tang Yulu for their excellent research assistant work and Elaine Leong for the superb English edits. Leong also thanks Nanyang Technological University for start-up funding and its support for this research. The usual caveat applies. †Division of Economics, Nanyang Technological University. Email:
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[email protected] §Department of Economics, Fudan University. Email:
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