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Abstract: The structure of usury statues varies from state to state. In particular some states have a limit on loan transactions involving unincorporated businesses while having no limit on transactions involving corporations. The policy behind this dichotomy stems from the industrial organization argument about relative bargaining strengths in a market. The unincorporated business is purported to involved people unsophisticated in financial transactions who, therefore, need protection. On the other hand, the corporation is large and sophisticated in financial matters and can fend for itself. This article suggests that the effects of the dichotomy may be less salutary than its defenders hope. In particular, it presents evidence which suggests that the corporate exemption induced unincorporated firms to incorporate simply to avoid usury limits.
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