A collateral asset is a factor of production and/or a durable consumption good which can be pledged to obtain financing. Due to this dual nature, an increase in the price of the asset has ambiguous effects on welfare. On the one hand, a higher price increases the cost of the asset, which discourages its use for production and consumption. On the other hand, as the value of collateral increases, agents can obtain more financing, which can foster economic activity. At the price of collateral that maximizes welfare, these two effects compensate each other at the margin. We use this insight to evaluate whether the actual price of Italian land over the 1990-2010 period is optimal. We conclude that, both in the 90's and in the 00's, its price is inefficiently low and that the potential welfare gains of sustaining a higher price of land (by increasing its foreign demand, regulating its supply, or directly controlling its price) would be sizeable. All this suggests that the Italian economy was heavily financially constrained over the period.

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