winners and losers in housing markets this paper is a quantitatively oriented theoretical study into the interaction between housing prices aggregate production and household behaviour over a lifetime we develop a life cycle model of a production economy in which land and capital are used to build residential and commercial structures we find that in an economy where the share of land in the value of structures is large housing prices react more to an exogenous change in expected productivity or the world interest rate causing large redistribution effects between net buyers and net sellers of houses changing the financing constraint however has limited effects on housing prices

seller reputation from word of mouth to centralized feedback abstract reputation is one of the most important incentives for trade and cooperation using the complete selling history of 125 135 sellers on eachnet com an ebay equivalent in china we show that sellers with a longer successful selling record enjoyed more repeat business reached more buyer regions sold in more product categories and had a higher completion rate even before eachnet introduced a centralized feedback system since the centralized feedback system the difference between reputable and non reputable sellers has decreased in terms of repeat business but enlarged in terms of market expansion these findings suggest that while reputation can facilitate trade through buyer experience and word of mouth it is not as effective as centralized feedback our study also shows that although completion rate and transaction price are the two outcomes most often examined in the literature seller reputation is important for buyer clientele market reach business scope and market survival

reputation and prices on the e market evidence from a major french platform we use an exhaustive data set from one of france s largest e commerce platforms priceminister com to estimate a statistical causal effect of a seller s reputation rating and size on transaction prices we go beyond the results currently available by tackling the issue of seller unobserved heterogeneity and the dynamics of reputation in price equations we can also produce results for a large range of product categories books cds video games or dvds product conditions used or new and seller types individual or professional sellers our results show large scale empirical evidence of a significant positive and strong effect of seller reputation on prices

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

the economics of credence goods an experiment on the role of liability verifiability reputation and competition credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies such as under and overtreatment or market breakdown we study in a large experiment with 936 participants the determinants for efficiency in credence goods markets while theory predicts that liability or verifiability yield efficiency we find that liability has a crucial but verifiability at best a minor allowing sellers to build up reputation has little influence as predicted seller competition drives down prices and yields maximal trade but does not lead to higher efficiency as long as liability is violated jel d12 d82

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

mortgage default during the u s mortgage crisis this paper asks which theories of mortgage default are quantitatively consistent with observations in the united states during 2002 2010 theoretical models are simulated for the observed time series of aggregate house prices their predictions are then compared to actual default rates on prime fixed rate mortgages an out of sample test discriminates between estimated reduced forms of the two most prominent theories the test reveals that the doubletrigger hypothesis attributing mortgage default to the joint occurrence of negative equity and a life event like unemployment outperforms a frictionless option theoretic default model based on this finding a structural partialequilibrium model with liquidity constraints and idiosyncratic unemployment shocks is presented to provide micro foundations for the double trigger hypothesis in this model borrowers with negative equity are more likely to default when they are unemployed and have low liquid wealth the model explains most of the observed strong rise in mortgage default rates a policy implication of the model is that subsidizing homeowners can mitigate a mortgage crisis at a lower cost than bailing out lenders

mortgage debt consumption and illiquid housing markets in the great recession using a model with housing search endogenous credit constraints and mortgage default this paper accounts for the housing crash from 2006 to 2011 and its implications for aggregate and cross sectional consumption during the great recession left tail shocks to labor market uncertainty and tighter down payment requirements emerge as the key drivers an endogenous decline in housing liquidity amplifies the recession by increasing foreclosures contracting credit and depressing consumption balance sheets act as a transmission mechanism from housing to consumption that depends on gross portfolio positions and the leverage distribution low interest rate policies accelerate the recovery in housing and consumption

house prices and credit constraints making sense of the us experience most us house price models break down in the mid 2000s due to the omission of exogenous changes in mortgage credit supply associated with the sub prime mortgage boom from house price to rent ratio and inverted housing demand models previous models lack data on credit constraints facing first time home buyers incorporating a measure of credit conditions the cyclically adjusted loan to value ratio for first time buyers into house price to rent ratio models yields stable long run relationships more precisely estimated effects reasonable speeds of adjustment and improved model fits

depreciation of housing capital maintenance and house price inflation estimates from a repeat sales model abstract the rate at which physical capital depreciates is fundamental to investment in the economy nevertheless although housing capital accounts for one third of the total capital stock the rate at which housing capital depreciates has only rarely been directly estimated in part because prior studies do not control for maintenance for that same reason widely publicized measures of house price appreciation overstate the capital gain from homeownership using data from the american housing survey we examine these issues over the 1983 to 2001 period results indicate that gross of maintenance housing depreciates at roughly 2 5 percent per year while net of maintenance housing depreciates at approximately 2 percent per year moreover although the typical home appreciated at an annual real rate of roughly 0 75 percent after allowing for depreciation and maintenance the average homeowner experienced little capital gain

imperfect monitoring and impermanent reputations we study the long run sustainability of reputations in games with imperfect public monitoring it is impossible to maintain a permanent reputation for playing a strategy that does not play an equilibrium of the game without uncertainty about types thus a player cannot indefinitely sustain a reputation for noncredible behavior in the presence of imperfect monitoring

the democratization of credit and the rise in consumer bankruptcies financial innovations are a common explanation for the rise in credit card debt and bankruptcies to evaluate this story we develop a simple model that incorporates two key frictions asymmetric information about borrowers risk of default and a fixed cost of developing each contract lenders offer innovations that ameliorate asymmetric information or reduce this fixed cost have large extensive margin effects via the entry of new lending contracts targeted at riskier borrowers this results in more defaults and borrowing and increased dispersion of interest rates using the survey of consumer finances and federal reserve board interest rate data we find evidence supporting these predictions specifically the dispersion of credit card interest rates nearly tripled while the new cardholders of the late 1980s and 1990s had riskier observable characteristics than existing cardholders our calculation suggest these new cardholders accounted for over 25 of the rise in bank credit card debt and delinquencies between 1989 and 1998

distributional implications of government guarantees in mortgage markets we analyze the removal of the credit risk guarantees provided by the government sponsored enterprises gses in a model with agents heterogeneous in income and house price risk we find that wealth inequality increases driven by higher mortgage spreads and housing rents housing holdings become more concentrated foreclosures fall the removal benefits high income households while hurting low and mid income households renters and highly leveraged mortgagors with conforming loans gse reform requires compensating transfers sufficiently high elasticity of rental supply or linking gse reform with the elimination of the mortgage interest deduction

limited records and reputation bubbles abstract this paper offers a tractable and fully rational model to study the economics of reputation in a dynamic market with limited record keeping i e a market in which new entrants observe only the last few periods of play of the long run player instead of the full history of the market we show that trust is gradually granted to the opportunistic long run player despite the fact that his type is perfectly observed by the short run opponents and the perfectly informed short run players ride and drive up reputation bubbles at the expense of their uninformed successors we characterize equilibrium payoffs uniformly over time which is useful for analyzing ongoing repeated relationships where the starting moments have passed

quantitative easing and related capital flows into brazil measuring its effects and transmission channels through a rigorous counterfactual evaluation abstract we show that unconventional monetary policy in the united states appears to influence capital inflows to brazil and through this channel its overall economic outlook and financial stability in particular quantitative easing leads to capital inflows exchange rate appreciation stock market price increases credit growth and expansion of domestic activity related to consumption such effects are significant when considering both parameter uncertainty and a new significance test for abnormal behavior according to a new channel identification method proposed in the paper capital inflow is the only domestic propagation channel that systematically accounts for the estimated effects across variables and samples results are robust across a wide range of policy counterfactuals regime break assumptions testing procedures and model specifications

macroeconomic effects of the mortgage refinance and the home equity lines of credit abstract i examine how the mortgage refinance and the home equity lines of credit heloc impact the increase in pre crisis mortgage debt and post crisis mortgage defaults financially constrained homeowners can cash out funds through refinancing mortgages or extract home equity through heloc my quantitative exercise shows that prevalent usage of refinancing increases pre crisis mortgage debt which amplifies the post crisis foreclosure rate heloc also contributes to an increase in mortgage defaults though it negligibly impacts pre crisis mortgage debt

two extensive margins of credit and loan to value policies author s gete pedro reher michael abstract we analyze a model of mortgage markets housing tenure choice heterogeneous agents and default with closed form solutions we uncover new insights which may inspire empirical work and we ground already established insights in a series of tractable expressions then we study optimal loan to value ltv regulation and show that the choice of an ltv cap should balance the opposing forces of access to homeownership and the negative externalities associated with default homeownership affordability concerns induce procyclical elements into optimal regulation which attenuate the countercyclical regulation justified by the negative default externalities

phasing out the gses we develop a new model of the mortgage market where both borrowers and lenders can default risk tolerant savers act as intermediaries between risk averse depositors and impatient borrowers the government plays a crucial role by providing both mortgage guarantees and deposit insurance underpriced government mortgage guarantees lead to more and riskier mortgage originations as well as to high financial sector leverage mortgage crises occasionally turn into financial crises and government bailouts due to the fragility of the intermediaries balance sheets increasing the price of the mortgage guarantee crowds in the private sector reduces financial fragility leads to fewer but safer mortgages lowers house prices and raises mortgage and risk free interest rates due to a more robust financial sector consumption smoothing improves and aggregate welfare increases while borrowers are nearly indifferent to a world with or without mortgage guarantees savers are substantially better off while aggregate welfare increases so does wealth inequality jel g12 g15 f31

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

the dynamics of seller reputation evidence from ebay we construct a panel of ebay seller histories and examine the importance of ebay s reputation mechanism we find that when a seller first receives negative feedback his weekly sales rate drops from a positive 7 to a negative 7 subsequent negative feedback ratings arrive 25 more rapidly than the first one and don t have nearly as much impact as the first one we also find that a seller is more likely to exit the lower his reputation is and that just before exiting sellers receive more negative feedback than their lifetime average we consider a series of theoretical models and measure them against these empirical results regardless of which theoretical model best explains the data an important conclusion of our paper is that ebay s reputation system gives way to noticeable strategic responses from both buyers and sellers

leverage and the foreclosure crisis how much of the foreclosure crisis can be explained by the large number of high leverage mortgages originated during the housing boom in our model heterogeneous households select from mortgages with different down payments and choose whether to default given income and housing shocks the use of low down payment loans is initially limited by payment to income requirements but becomes unrestricted during the boom the model approximates key housing and mortgage market facts before and after the crisis a counterfactual experiment suggests that the increased number of high leverage loans originated prior to the crisis can explain over 60 percent of the rise in foreclosure rates

coordination commitment and enforcement the case of the merchant guild we interpret historical evidence in light of a repeated game model to conclude that merchant guilds emerged during the late medieval period to allow rulers of trade centers to commit to the security of alien merchants the merchant guild developed the theoretically required attributes secured merchants property rights and evolved in response to crises to extend the range of its effectiveness contributing to the expansion of trade during the late medieval period we elaborate on the relations between our theory and the monopoly theory of merchant guilds and contrast it with repeated game theories that provide no role for formal organization

public trust and government betrayal abstract this study presents a simple model of government reputation in which government type cannot be directly observed by households with the variation that government type rather than being permanent follows an exogenous markov process this formulation captures three characteristics of bad policy outcomes governments which betray public trust do so erratically public trust is regained only gradually after a betrayal and governments with recent betrayals betray with higher probability than other governments

joint dynamics of house prices and foreclosures this paper studies the joint transitional dynamics of the foreclosures and house prices in a standard life cycle incomplete markets model with housing and a realistic long term mortgage structure we calibrate our model to match several long term features of the u s housing market and analyze the effects of several unexpected and permanent shocks on the house price and the foreclosure rate both across the steady states and along the transition between the steady states we examine permanent unexpected shocks to the risk free interest rate the minimum down payment ratio and unemployment during the transition these shocks create large movements in house prices more importantly the foreclosure dynamics are quite significant along the transition compared to the steady state changes and there are strong feedbacks between foreclosures and house prices we assess the effects of a temporary reduction in the risk free interest rate which has moderate effects on house prices but little effect on foreclosure dynamics we also study the effects of an ex ante macroprudential policy which establishes a minimum down payment requirement at a higher threshold such a macroprudential policy helps substantially stabilize both house prices and foreclosures

rational cooperation in the finitely repeated prisoner s dilemma experimental evidence this paper presents experiments designed to examine the sequential equilibrium reputation hypothesis in the finitely repeated prisoner s dilemma the authors test the hypothesis by controlling the subjects ability to build reputations and by manipulating their beliefs that their opponent is irrational or altruistic the responses of subjects strongly support the sequential equilibrium prediction the results also suggest an important role for homemade altruism that is a natural tendency to cooperate that subjects bring to the experiment from the outside the authors find that there may be no difference between the beliefs that an opponent is altruistic and the actual chance it is so copyright 1993 by royal economic society

should i default on my mortgage even if i can pay experimental evidence abstract we study strategic default in the laboratory i e in a controlled experiment subjects are initially endowed with a house and a mortgage we use neutral wording in the experiment and must decide at each period in which their mortgage is alive among three options making the mortgage payment selling the house or walking away from their house and defaulting on their mortgage at each point in time we can observe whether defaulters can afford to make the mortgage payment and thus directly compute the number of strategic defaulters subjects default in the right periods and quite fast learn what they should consume we find experimental support for the double trigger hypothesis individuals faced with low income and low house prices are more likely to default we observe that subjects default less than optimal and this decision is significantly affected by social norm concerns in the context of the experiment individuals under consume in the first periods of life they are cautious when indebted both introducing a 50 probability of recourse and a responsible homeowner reward are very effective in preventing default in the lab especially by individuals receiving a bad shock to income when house prices are low

intergenerational redistribution in the great recession in this paper we construct a stochastic overlapping generations general equilibrium model in which households are subject to aggregate shocks that aect both wages and asset prices we use a calibrated version of the model to quantify how the welfare costs of severe recessions are distributed across dierent household age groups the model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages asset price declines hurt the old who rely on asset sales to nance consumption but benet the young who purchase assets at depressed prices in our preferred calibration asset prices decline more than twice as much as wages consistent with the experience of the us economy in the great recession a model recession is approximately welfare neutral for households in the 20 29 age group but translates into a large welfare loss of around 10 percent of lifetime consumption for households aged 70 and over

maintaining a reputation when strategies are imperfectly observed this paper studies reputation effects in games with a single long run player whose choice of stage game strategy is imperfectly observed by his opponents we obtain lower and upper bounds on the long run player s payoff in any nash equilibrium of the game if the long run player s stage game strategy is statistically identified by the observed outcomes then for generic payoffs the upper and lower bounds both converge as the discount factor tends to 1 to the long run player s stackelberg payoff which is the most he could obtain by publicly committing himself to any strategy