Empire Effect 287 this legislation should not be exaggerated.The average difference be- tween noncolonial and colonial yields was above 250 basis points be- tween 1880 and 1898 and about 180 basis points between 1899 and 1913-in other words the premium on noncolonial bonds was actually higher before the Colonial Loans Act and Colonial Stock Act came into force.Prior to the First World War,these acts were the only formal en- couragements to investors to favor colonial bonds.16 There are,however,other,less formal reasons why prewar investors may have incorporated an imperial discount when pricing bonds.The Victorians imposed a distinctive set of institutions on their colonies that very likely enhanced their appeal to investors.These extended beyond the Gladstonian trinity of sound money,balanced budgets,and free trade to include the rule of law (specifically,British style property rights)and relatively noncorrupt administration-among the most im- 17 portant "public goods"of late-nineteenth-century liberal imperialism.' Debt contracts with colonial borrowers were more likely to be enforce- able than those with independent states.It would be rather puzzling if investors had regarded Australia as no more creditworthy than Argen- tina,or Canada as no more creditworthy than Chile. For a number of reasons,then,it is possible that the imposition of British rule practically amounted to a"no default"guarantee;the only uncertainty investors had to face concerned the expected duration of British rule.Before 1914,despite the growth of nationalist movements in possessions as different as Ireland and India,political independence still seemed a fairly remote prospect for most subject peoples.At this point even the major colonies of white settlement had been granted only a limited political autonomy.Thus,in the words of P.J.Cain and A.G. Hopkins:"One of the key reasons why the colonies could borrow cheaply [was that]they offered almost complete safety. DETERMINANTS OF BOND SPREADS The possibility exists,nevertheless,that other considerations mat- tered more to investors than the extent to which a country's sovereignty 16It was only after the war that the Treasury and the Bank of England began systematically to give preference to new bond issues by British possessions over new issues by independent for- eign states:see Atkin,"Official Regulation,"pp.324-35. 7Ferguson,Empire,especially chapter 4.A modern survey of 49 countries concluded that common-law countries offered"the strongest legal protections of investors."The fact that 18 of the countries in the sample have the common law system is,of course,almost entirely due to their having been at one time or another under British rule:La Porta et al.,"Law and Finance." See Rostowski and Stacescu,"Wig." 18 Cain and Hopkins,British Imperialism,p.240.Empire Effect 287 this legislation should not be exaggerated. The average difference be￾tween noncolonial and colonial yields was above 250 basis points be￾tween 1880 and 1898 and about 180 basis points between 1899 and 1913—in other words the premium on noncolonial bonds was actually higher before the Colonial Loans Act and Colonial Stock Act came into force. Prior to the First World War, these acts were the only formal en￾couragements to investors to favor colonial bonds.16 There are, however, other, less formal reasons why prewar investors may have incorporated an imperial discount when pricing bonds. The Victorians imposed a distinctive set of institutions on their colonies that very likely enhanced their appeal to investors. These extended beyond the Gladstonian trinity of sound money, balanced budgets, and free trade to include the rule of law (specifically, British style property rights) and relatively noncorrupt administration—among the most im￾portant “public goods” of late-nineteenth-century liberal imperialism.17 Debt contracts with colonial borrowers were more likely to be enforce￾able than those with independent states. It would be rather puzzling if investors had regarded Australia as no more creditworthy than Argen￾tina, or Canada as no more creditworthy than Chile. For a number of reasons, then, it is possible that the imposition of British rule practically amounted to a “no default” guarantee; the only uncertainty investors had to face concerned the expected duration of British rule. Before 1914, despite the growth of nationalist movements in possessions as different as Ireland and India, political independence still seemed a fairly remote prospect for most subject peoples. At this point even the major colonies of white settlement had been granted only a limited political autonomy. Thus, in the words of P. J. Cain and A. G. Hopkins: “One of the key reasons why the colonies could borrow cheaply [was that] they offered almost complete safety.”18 DETERMINANTS OF BOND SPREADS The possibility exists, nevertheless, that other considerations mat￾tered more to investors than the extent to which a country’s sovereignty 16 It was only after the war that the Treasury and the Bank of England began systematically to give preference to new bond issues by British possessions over new issues by independent for￾eign states: see Atkin, “Official Regulation,” pp. 324–35. 17 Ferguson, Empire, especially chapter 4. A modern survey of 49 countries concluded that common-law countries offered “the strongest legal protections of investors.” The fact that 18 of the countries in the sample have the common law system is, of course, almost entirely due to their having been at one time or another under British rule: La Porta et al., “Law and Finance.” See Rostowski and Stacescu, “Wig.” 18 Cain and Hopkins, British Imperialism, p. 240