alas my home is my castle on the cost of house ownership as a screening device abstract this paper analyzes a model in which housing tenure choice serves as a means of screening households with different utilization rates if the proportion of low utilization types is small there is a separating equilibrium at which tenure choice acts as a screening device consistent with empirical evidence low utilization households buy a house while high utilization types rent otherwise there is a pooling equilibrium the reason why contrary to standard screening models a pooling equilibrium possibly exists is indivisibility of home ownership which makes it a very costly screening device introducing partial ownership restores the standard results non existence of a pooling equilibrium and possible non existence of equilibrium

outcomes of voting and planning condorcet weber and rawls locations abstract the paper is concerned with the comparison of the locations of a facility resulting from voting and planning procedures it is shown that a voting location exists and coincides with that minimizing the total distance covered by the users to go to the facility when the transportation network contains no cycles for a general network least upper bounds on the ratio of the social values of the voting and planning locations are given in the cases where the total or the maximal travelled distance is minimized

collateral in credit rationing in markets with imperfect information note in their 1981 article joseph stiglitz and andrew weiss analyze adverse selection and incentive effects in the loan market the models considered are based on two crucial assumptions borrowers are subject to limited liability and lenders cannot distinguish borrowers projects of different risk stiglitz and weiss show that a bank that raises its interest rate may suffer adverse selection because only risky borrowers will be willing to borrow at the higher rate thus lenders may choose not to raise the interest rate to eliminate excess demand resulting in the possibility of a credit rationing equilibrium stiglitz and weiss also consider briefly the role of collateral in such credit rationing models they conclude that lenders may choose not to use collateral requirements as a rationing device an increase in collateral requirements like an increase in the interest rate potentially leads to a decrease in the lender s expected return on loans because of resulting adverse incentive and selection effects the purpose of this note is to further investigate the role of collateral in these models stiglitz and weiss discussion in section iii establishes that adverse selection effects can result from increases in collateral when borrowers are risk averse i will show by returning to a model they discussed earlier in section i that the adverse selection effects can also occur when borrowers are risk neutral stiglitz and weiss outline a model to consider the use of collateral as a rationing device section iii in that model all potential borrowers face the same array of risky projects each potential borrower chooses at most one of those projects to undertake the individuals are by assumption risk averse with decreasing absolute risk aversion and possess different amounts of initial wealth thus choice of project if any to undertake and the method of finance selffinance from initial wealth or loan finance will differ from one individual to the next stiglitz and weiss show that among those who undertake risky projects and who choose borrowing as the method of finance wealthier individuals undertake riskier projects an increase in collateral has two effects on the market for loans those individuals who remain in the market will choose to undertake less risky projects and those individuals who drop out of the market are less wealthy low risk borrowers if the second effect is sufficiently strong then increased collateral requirements will mean decreased expected returns for the lender thus a credit rationing equilibrium may occur since lenders may not choose to use collateral requirements or the interest rate to eliminate excess demand the adverse selection effect just described does not occur in this model if the individuals are risk neutral consequently the potential for a credit rationing equilibrium is limited to cases where borrowers are risk averse to see that increases in collateral requirements can also result in adverse selection if borrowers are risk neutral consider the model stiglitz and weiss used to analyze the adverse selection effects of increases in the interest rate section i pp 395 99 it differs from the section iii model discussed above in three ways first borrowers are risk neutral second all projects ar loan financed the analogy to the section iii model is that no individuals have sufficient wealth to self finance projects third in the section

do better schools matter parental valuation of elementary education the evaluation of numerous school reforms requires an understanding of the value of better schools given the difficulty of calculating the relationship between school quality and student outcomes i turn to another method and use house prices to infer the value parents place on school quality i look within school districts at houses located on attendance district boundaries houses then differ only by the elementary school the child attends i thereby effectively remove the variation in neighborhoods taxes and school spending i find that parents are willing to pay 2 5 percent more for a 5 percent increase in test scores this finding is robust to a number of sensitivity checks

valuing english primary schools this paper provides the first empirical evidence for the uk on the effect of primary school performance on property prices we find that on average a one percentage point increase in the neighbourhood proportion of children reaching the government specified target grade pushes up neighbourhood property prices by 0 67 at 2000 property prices we calculate the social valuation of a sustained 1 improvement in primary school performance to be up to 90 per child per year our instrumental variable and semi parametric approach avoids the problems of school quality endogeneity and omitted neighbourhood variables that occur in typical property value models

design and rating of risk contingent credit for balancing business and financial risks for kenyan farmers abstractweather related agricultural risks and limited access to credit are serious impediments to agricultural productivity and growth in developing countries this paper describes a novel insuran

differentiated contracts heterogeneous borrowers and the mortgage choice decisions previous analyses of mortgage choice assume that adjustable rate mortagages are standard contracts and estimate bivariate models the authors estimate a multinomial logit model that explicitly treats mortgages as differentiated contracts and provides insights on several important issues the impact of price variables differs significantly across alternative mortgage contracts borrower heterogeneity particularly mobility influences the type of contract chosen and borrowers respond to market conditions as expected when choosing between alternative mortgage contracts copyright 1995 by ohio state university press

symbiosis vs crowding out the interaction of formal and informal credit markets in developing countries abstract it is a common observation in many developing countries that enterprises are active borrowers in both formal and informal credit markets we propose a model in which the formal sector s superior ability in deposit mobilization is traded off against the informational advantage that lenders in the informal sector enjoy the formal sector can screen borrowers by providing only partial financing for projects thereby forcing borrowers to resort to the informal sector for the remainder of the loan we use the model to predict how the market structure responds to changes in the environment and we consider the policy implications of various forms of government intervention

equilibrium in a finite local public goods economy abstract this paper examines the existence of a noncooperative equilibrium in a finite local public goods economy where consumers have quasi linear preferences jurisdictions consist of consumers who chose the same public project and finance the cost of production of public goods through either a proportional income tax or a poll tax we show that under a proportional income tax scheme a nash equilibria may fail to exist under a poll tax scheme an equilibrium always exists but in general nash equilibria violate a very weak efficiency condition we conclude by commenting on the stabilizing effect of zoning policies journal of economic literatureclassification number c71

efficiency and consistency for locating multiple public facilities abstract in the problem of locating multiple public facilities studied by barbera and bevia self selection consistent functions j econ theory 105 2002 263 277 locating public facilities by majority stability consistency and group formation games econ behav 56 2006 185 200 we offer simple necessary and sufficient conditions for efficiency decentralizability of efficient decisions in a game of community division and local public goods provision and a constructive algorithm for efficient and consistent decisions

capitalization and the theory of local public finance the tiebout literature is incomplete this paper argues because it has not fully accounted for the capitalization of local fiscal variables into house values the paper explains why capitalization arises why it persists in long run equilibrium how it affects both residential location and the outcome of local voting and why it interferes with the efficiency of a system of local governments the analysis which is based on the main tiebout assumptions plus a property tax combines a model of household bids in a housing market with a median voter model of local public service determination

adjustable and fixed rate mortgages as a screening mechanism for default risk abstract this paper studies how borrowers with different levels of default risk would self select between fixed rate mortgages frms and adjustable rate mortgages arms we show that under asymmetric information where the risk type of a borrower is private information to the borrower and not known by the lender the unique equilibrium may be a separating equilibrium in which the high risk low risk borrowers choose arms frm s thus the borrower s mortgage choice will serve as a signal of default risk enabling lenders to screen high risk and low risk borrowers it is possible for the separating equilibrium to yield positive economic profits for lenders in a competitive market it is also possible to have a unique pooling equilibrium where all borrowers choose either frms or arms the model implies that an increase in the proportion of high risks will increase the likelihood of a separating equilibrium where both mortgage types are offered also a uniform downward shift in the expected change in the interest rate or an increase in borrowers current or future incomes make arms more attractive for both types of borrowers

mortgage valuation under optimal prepayment mortgage originators offer borrowers various combinations of points loan fees and coupon high points and low coupon or low points and high coupon in this article points are interpreted as a device serving to separate borrowers with high prepayment probabilities from those with low prepayment probabilities borrowers and lenders are treated symmetrically both are risk neutral and both have complete and frictionless access to credit markets implying that borrowers can finance points if they wish except that borrowers prepayment speeds are private knowledge equilibria are derived both when borrowers cannot prepay voluntarily and when they can article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a generalized valuation model for fixed rate residential mortgages this paper uses option pricing techniques to rationally price mortgage instruments subject to both default and prepayment risk attention is given to terminations due to purely financial consideration of the mortgage contract itself as well as to personally induced terminations explicit inclusion of default in the mortgage valuation procedure also permits the valuation of insurance against such default qualitatively it is found that default differs significantly in the behavior from either prepayment or nonfinancial termination quantitatively however there is significant substitution between prepayment and default so that the addition of a default feature to the contract has only a modest impact on mortgage values unless there is substantial price volatility in the housing market or a high loan to value ratio copyright 1992 by ohio state university press

repossession and the democratization of credit we exploit a 2004 credit reform in brazil that simplified the sale of repossessed cars used as collateral for auto loans we show that the reform expanded credit to riskier self employed borrowers who purchased newer more expensive cars the legal change has led to larger loans with lower spreads and longer maturities although the credit reform improved riskier borrowers access to credit it also led to increased incidences of delinquency and default our results shed light on the consequences of a credit reform and highlight the crucial role that collateral and repossession play in the liberalization and democratization of credit

is relationship lending special evidence from credit file data in germany the german financial market is often characterized as a bank based system with strong bank customer relationships the corresponding notion of a housebank is closely related to the theoretical idea of relationship lending it is the objective of this paper to provide a direct comparison between housebanks and normal banks as to their credit policy therefore we analyze a new data set representing a random sample of borrowers drawn from the credit portfolios of five leading german banks over a period of five years we use credit file data rather than industry survey data and thus focus the analysis on information that is directly related to actual credit decisions in particular we use bank internal borrower rating data to evaluate borrower quality and the bank s own assessment of its housebank status to control for information intensive relationships the major results of our study support the view that housebanks are able to establish a distinct behavioral pattern consistent with the idea of long term commitment we find that housebanks do provide liquidity insurance in situations of unexpected deterioration of borrower ratings with respect to loan pricing we find no evidence for intra or intertemporal price differentiation related to housebanking

assessing the impact of local taxation on property prices a spatial matching contribution this paper provides empirical evidence on the impact of local taxation on property prices controlling for the local public spending using data on property taxation and real estate transactions over the period 1994 2004 our empirical methodology pairs transactions in the same spatial environments spatial differencing and instrumental variables methodology allow us to compare sales across municipality boundaries and to control for the potential endogeneity of local taxation and public spending our results suggest that the local property tax rate has no impact on property prices while the amount of taxes paid appears to have a negative effect on property price

house price expectations alternative mortgage products and default rapid house price depreciation and rising unemployment were the main drivers of the huge increase in mortgage default during the downturn years of 2007 to 2010 however mortgage default was also partly driven by an increased reliance on alternative mortgage products such as pay option arms and interest only mortgages which allow the borrower to defer principal amortization the goal of this paper is to better understand the forces that spurred use of alternative mortgages during the housing boom and the resulting impact on default patterns relying on a unifying conceptual framework to guide the empirical work the conceptual framework allows borrowers to choose the extent of mortgage backloading the postponement of loan repayment through various mechanisms that constitutes a main feature of alternative mortgages the model shows that when future house price expectations become more favorable reducing default concerns mortgage choices shift toward alternative contracts this prediction is confirmed by empirical evidence showing that an increase in past house price appreciation which captures more favorable expectations for the future raises the market share of alternative mortgages in addition using a proportional hazard default model the paper tests the fundamental presumption that backloaded mortgages are more likely to default finding support for this view the views expressed in this paper are those of the authors and do not necessarily reflect those of the federal reserve bank of philadelphia or the federal reserve system this paper is available free of charge at http www philadelphiafed org research anddata publications working papers

a capitalization approach to fiscal incidence at the local level this paper argues that an analysis of the capitalized burdens and benefits of the local public sector offers a simple straightforward and objective computational methodology to fiscal incidence at the local level this capitalization approach represents a major departure from the highly discretionary and imprecise computational environment of the reasonable assumptions and aaron and mcguire approaches it is initially discussed both from conceptual and operational points of view and then implemented using alternate procedures major limitations of the approach are then noted a comparative perspective on fiscal incidence results based on the capitalization approach and of earlier studies on this subject is provided in the concluding section of the paper during the past two decades several important studies have been published which investigate the redistributive implications of federal provincial and local government finances in canada all the canadian studies on the subject in general follow the methodology used for similar studies in the united states these studies differ as to the shifting of tax burden assumptions and the concept of income employed and understandably their results also vary accordingly a common criticism of these approaches is that their distribution conclusions depend crucially on what incidence hypothesis is chosen musgrave and musgrave 1976 394 all these studies merely illustrate what the distribution of fiscal incidence would be if the incidence assumptions were true the numerical es

an analysis of mortgage contracting prepayment penalties and the due on sale clause the due on sale clause contained in most conventional home mortgage contracts is equivalent to a prepayment penalty equal to the difference between the face value and market value of the loan we analyze a bilateral game with asymmetric information and show that the bank demands the full penalty unless the market value of the loan is sufficiently low in that case the bank demands a prepayment penalty which is independent of the market value of the loan in order to induce additional prepayments we also demonstrate by a risk sharing argument that the due on sale clause is optimal in some settings even though it eliminates some beneficial home sales almost all conventional fixed rate home mortgage contracts written in the last decade contain a due on sale clause which gives the lender the contractual right to declare the total indebtedness due immediately if the mortgaged property is transferred as mortgage rates rise lending institutions suffer capital losses on fixed rate mortgage loans while borrowers earn capital gains equal to the difference between the face value and market value of their loans the due onsale clause gives the lending institution the right to demand the borrower s capital gain as a prepayment penalty in order to increase the probability of prepayment it can be optimal for the bank to accept a partial settlement in this paper we analyze the bank s strategy for setting the prepayment penalty it demands under the due on sale clause and examine the optimality of the clause the model we develop also applies to other types of prepayment penalties i e loan covenants which require payment of a premium over market value in order to extinguish

valuing commercial mortgages an empirical investigation of the contingent claims approach to pricing risky debt this paper empirically investigates a contingent claims model of commercial mortgage pricing we find that the magnitude of the observed default premia for a sample of nonprepayable fixed rate bullet mortgages can be explained by the contingent claims model in addition the model explains a significant proportion of the period to period changes in the default premia however given an assumed negative correlation between building value changes and interest rate changes the model s risk structure tends to increase less steeply with increasing maturity than the observed risk structure since the seminal work of black and scholes 1973 corporate liabilities have been modeled as options on the total value of the firm this contingent claims approach to bond pricing was refined by merton 1974 to allow for cash dispersals prior to the bonds maturities and by brennan and schwartz 1980 and ingersoll 1987 to allow for interest rate uncertainty although variants of these bond pricing models are currently being used extensively on wall street they have not been tested extensively moreover empirical studies have not successfully accounted for the observed spread between the rates on risky and default free debt jones mason and rosenfeld 1984 empirically investigate a model that assumes a nonstochastic term structure of interest rates while ramaswamy and sundaresan 1986 examine a model with stochastic interest rates to price floating rate notes in both cases the models could not explain the observed default premia the relative lack of empirical analysis is due partly to the complicated nature of corporate bonds major corporations generally have a large number of different bond issues outstanding that have different priorities in the event that the firm goes bankrupt moreover the bonds can have a variety of covenants specifying sinking fund provisions conditions under which technical default will occur and other restrictions that can have an impact on their value although these complications do not preclude pricing various bond issues on a case by case basis they make it difficult to test systematically the accuracy of the pricing model

optimal mortgage design this article studies optimal mortgage design in a continuous time setting with volatile and privately observable income costly foreclosure and a stochastic market interest rate we show that the features of the optimal mortgage are consistent with an option adjustable rate mortgage option arm under the optimal contract the borrower is given discretion of how much to repay until his balance reaches a certain limit the default rates and interest rate payment on the mortgage correlate positively with the market interest rate gains from using the optimal contract relative to simpler mortgages are the biggest for those who face more income variability buy pricey houses given their income level or make little or no down payment our model thus may help to explain a high concentration of option arms among riskier borrowers jel g20 g21 g33

the rise and fall of the arm an econometric analysis of mortgage choice this paper estimates an empirical model of the choice between adjustable and fixe d rate mortgages using a large national database compiled by the nat ional association of realtors the explanatory variables in the probi t choice equation include borrower characteristics regional dummies the frm rate and the frm arm rate differential since the intrerest rate on the mortgage not chosen is unobserved this rate must be est imated in a way that eliminates selectivity bias simulation of the e stimated choice equation provides insight into the origin of the arm revolution copyright 1988 by mit press

robust financial contracting and the role of venture capitalists we derive a role for inside investors such as venture capitalists in resolving various agency problems that arise in a multistage financial contracting problem absent an inside investor the choice of securities is unlikely to reveal all private information and overinvestment may occur an inside investor however always makes optimal investment decisions if and only if he holds a fixed fraction contract where he always receives a fixed fraction of the project s payoff and finances that same fraction of future investments this contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds in this article we develop a model of financial contracting with multiple investment decisions and show how conflicts of interest and informational asymmetries can be effectively resolved by an inside investor i e an investor who not only provides capital but also works closely with the firm monitors it frequently and is generally very well informed about the firm s prospects and investment opportunities venture capitalists are obvious examples of inside investors and their function has been an important motivation for this article banks especially in japan and germany are also involved in monitoring and can be viewed as playing the role of inside investors in this article we examine the potential benefits of inside investors in a context where there are no restrictions beyond limited liability on the type of financial contracts that can be written we address a basic financial contracting problem involving an entrepreneur who has an idea for a project but does not have sufficient capital to fund it an important assumption is that there are several stages in the project s development and that a decision must be made at each stage whether the project should be continued or abandoned if the project is continued the amount of additional capital to be invested must also be determined we assume that the entrepreneur as an insider observes private information about the project s profitability at each stage this information is not

adverse selection in a model of real estate lending we provide a rationale for the presence of points in mortgage loan contracts our analysis builds on two key features first insurance markets are unavailable for labor income second the due on sale clause allows banks to offer loan contracts which partially insure against fluctuations in labor income if explicit prepayment penalties are prohibited by law points serve effectively as prepayment penalties we also examine environments where such penalties are not prohibited and show that points will be used if interest rates cannot depend on the size of the loan conventional home mortgage contracts contain a vast array of contingent clauses the most controversial of these is the due on sale clause that gives the lender the contractual right to declare the loan fully payable if all or part of the mortgaged property is sold dunn and spatt 1985 argue that the due on sale clause can provide insurance to the borrower they consider an environment where individuals face uninsurable risk in their income if incomes are high when borrowers move they will prefer a contract which imposes a prepayment penalty when they sell their property in return for a subsidy perhaps in the form of lower interest rates when they stay dunn and spatt characterize the optimal contract when the income of borrowers is unobservable to the lender however all borrowers are ex ante identical in this paper we examine a market where individuals differ in the riskiness of their potential gains from selling their property if this information is private to the borrower the kind of insurance arrangement described above must be modified to deal with the obvious selection problems that arise any lender must therefore ensure that any insurance contract offered to individuals with riskier income streams does not offer so much insurance at such a favorable price that individuals with less risky income also accept the same contract the classic analysis of this type of problem is by rothschild and stiglitz 1976 and our analysis follows theirs in order to focus attention on the nature of the adverse selection problem we assume two types of individuals both types have the same expected income stream for simplicity we assume that type i individuals do not

locating public facilities by majority stability consistency and group formation abstract we consider the following allocation problem a fixed number of public facilities must be located on a line society is composed of n agents who must be allocated to one and only one of these facilities agents have single peaked preferences over the possible location of the facilities they are assigned to and do not care about the location of the rest of facilities there is no congestion we show that there exist social choice correspondences that choose locations and assign agents to them in such a way that 1 these decisions are condorcet winners whenever one exists 2 the majority of the users of each facility supports the choice of its location and 3 no agent wishes to become a user of another facility even if that could induce a change of its present location by majority voting

choosing between fixed and adjustable rate mortgages note introduction in recent years mortgage borrowers have been given a wide variety of financing methods from which to choose e g guttentag 1983 barnett and mckenzie 1984 examples include assumptions adjustable rates shared appreciation growing equity and numerous others by far the dominant two have been the standard fixed rate and the adjustable rate mortgage beginning with regulation changes in 1979 adjustable rate mortgage lending at first was fairly restricted but with the major deregulation change in 1981 the types of adjustable rate mortgages have proliferated 2 now lenders have the flexibility to use numerous indexes including inflation and disposable income indexes make interest rate changes independent of payment changes and allow negative amortization the purpose of this paper is to examine the choice between fixed and adjustable rate mortgages 3 two views have dominated the theoretical literature one that emphasizes the irrelevance of borrower characteristics in the mortgage choice decision given the prices and terms of the contract and one that focuses on the potential impact of borrower characteristics assuming asymmetric information 4 this paper is the first to examine empirically the impact of pricing and borrower characteristics on the choice of mortgage contract

evaluation of credit guarantee policy using propensity score matching in this article we evaluate the effect of the credit guarantee policy by comparing a large sample of guaranteed firms and matched non guaranteed firms from 2000 to 2003 the sample firms are compared with respect to growth rates of different performance indicators including productivity sales employment investment r d wage level and the survival of firms in the post crisis period in order to avoid the selectivity problem propensity score matching methodologies are adopted results suggest that credit guarantees influenced significantly firms ability to maintain their size and increase their survival rate but not to increase their r d and investment and hence their growth in productivity moreover due to the adverse selection problem firms with lower productivity were receiving guarantees

capitalization of interjurisdictional fiscal differentials an alternative approach abstract in virtually every study concerning capitalization of fiscal differentials into property values the unit of observation has been a local jurisdiction or an individual house sale within a jurisdiction urban economic theory suggests that capitalization of fiscal differentials should be most obvious at the border of two jurisdictions housing price differentials between adjacent blocks at the border of two jurisdictions will be used to study capitalization such an approach reduces problems associated with measurement of dis amenities and public services and with the use of a distance variable in urban areas with multiple employment or recreation centers

sharing contracts marginalisation adverse selection and markup calculation this paper proposes a new approach to explain the dominance in the islamic banking market of markup contracts at the expense of sharing ones we show that the dual pricing practised in this market produces an additional or artificial dimension of adverse selection which is causing the sharing contracts marginalization we suggest specialized use of two islamic contractual categories as a device for eliminating artificial adverse selection we suggest also an endogenous calculation of the markup that is independent of the interest rate based on the financing cost unification this approach allows the deduction of default and liquidity risk premiums

the determinants of default on insured conventional residential mortgage loans this paper presents empirical evidence on the determinants of default for insured residential mortgages a multinomial logit model is specified and estimated for regional aggregates constructed from cross sectional and time series data the results document the independent statistical significance of contemporaneous payment income and loan value ratios and unemployment rates as well as more commonly studied determinants of default such as age and the original loan value ratio

signaling in credit markets in this paper we show that under a variety of alternative assumptions about the private information of loan applicants a competitive market for loans is characterized by screening banks separate out loan risks by offering higher loans at higher interest rates depending on the nature of the informational asymmetry it may be that applicants with less risky projects select larger rather than smaller loans comparative statics implications are also examined in particular we explore the effects of an increase in banks cost of funds on average loan quality

paying for primary schools admission constraints school popularity or congestion school quality is capitalised in house prices if access to schools is rationed by residential location we generate empirical predictions from three different theoretical approaches linking house prices to school performance distance to school and capacity these are respectively based upon admission constraints school popularity and congestion effects we find that test score based school performance significantly increases property prices but only the best one in ten schools generate higher than average prices close by and that prices are higher close to popular over capacity schools we conclude that the empirical evidence is more in line with the school popularity model

alternative mortgage instruments the tilt problem and consumer welfare mortgage instrument in the united states for the last 50 years and for much of this period it has performed well however during periods of high and volatile rates of inflation the sfpm suffers from severe weaknesses 1 foremost among these problems from the standpoint of the borrower is the tilt in the stream of real mortgage payments toward the initial years of the mortgage for consumers unconstrained by capital market imperfections this tilt is unimportant however a consumer is typically unable to borrow against expected higher future income or against the nominal capital gains that accrue to the owner of a house over the life of the mortgage in addition common practices of mortgage lenders often limit mortgage payments to some fraction of income at the time of purchase together these liquidity constraints create a mismatch between the time se quence of mortgage payments and income a mismatch that reduces the number of borrowers who qualify for financing and that limits the value of the house purchased by those who do obtain financing 2 in an attempt to reduce the problems created by this mismatch a variety of alternative mortgage instruments amis has been suggested three of the most important are the graduated payment mortgage gpm the shared appreciation mortgage sam and the price level adjusted mortgage plam 3 with the gpm mortgage payments rise at some specified rate during a portion of the mortgage life the sam enables the lender to share in the appreciation of the university of colorado boulder and syracuse university respectively this paper was writ ten while the first author was at syracuse university funding for the research was shared by the office of the comptroller of the currency the federal horne loan bank board and the department of housing and urban development mary anne beeman served as research assistant and the manu

option theory and floating rate securities with a comparison of adjustable and fixed rate mortgages this article demonstrates how to value floating rate securities in particular adjustable rate mortgages in the presence of default the problem is not a straightforward one since endogenous termination default and prepayment necessitates solution by backward procedures but caps on the floating rate then create path dependencies the solution is to introduce an artificial state variable the past contract rate in addition to the natural stochastic variables the interest and the house price process with this technique a numerical investigation of the properties of defaultable adjustable rate mortgages is provided in all cases a comparison is made with standard fixed rate mortgages coauthors are donald c keenan walter j muller iii and james f epperson copyright 1993 by university of chicago press

the stability of hedonic coalition structures we consider the partitioning of a society into coalitions in purely hedonic settings i e where each player s payoff is completely determined by the identity of other members of her coalition we first discuss how hedonic and nonhedonic settings differ and some sufficient conditions for the existence of core stable coalition partitions in hedonic settings we then focus on a weaker stability condition individual stability where no player can benefit from moving to another coalition while not hurting the members of that new coalition we show that if coalitions can be ordered according to some characteristic over which players have single peaked preferences or where players have symmetric and additively separable preferences then there exists an individually stable coalition partition examples show that without these conditions individually stable coalition partitions may not exist we also discuss some other stability concepts and the incompatibility of stability with other normative properties journal of economic literature classification numbers c71 a14 d20

self selection consistent functions abstract this paper studies collective choice rules whose outcomes consist of a collection of simultaneous decisions each one of which is the only concern of some group of individuals in society the need for such rules arises in different contexts including the establishment of jurisdictions the location of multiple public facilities or the election of representative committees we define a notion of allocation consistency requiring that each partial aspect of the global decision taken by society as a whole should be ratified by the group of agents who are directly concerned with this particular aspect we investigate the possibility of designing efficient allocation consistent rules we also explore whether such rules may in addition respect the condorcet criterion journal of economic literature classification numbers d7 d71

reducing the impact of real estate foreclosures with amortizing participation mortgages we employ amortizing participation mortgage apm to offer a novel ex post renegotiation method of a foreclosure apm belongs to the family of home loan credit facilities advocated in the dodd frank wall street reform and consumer protection act 2010 in our framework apms reduce the endemic agency costs of debt by improving affordability these benefits increase the demand for real estate in bust times and reduce fragility of the financial system thereby preventing foreclosures we evaluate apms in a stochastic control framework and provide solutions for an optimal amortization schedule we generalize our approach to partially amortizing and commercial mortgages which encompass balloon payments finally we provide concrete numerical examples of home loan modifications we also offer detailed sensitivity analysis to market parameters such as house price volatility and interest rates

determinants of local public policies for farmland preservation and urban expansion a french illustration we outline the determinants of local public policies for farmland preservation and urban expansion we first rely on the literature and on a purposely designed field study of municipalities in southern france to propose a theoretical framework better suited to the french situation the model considers aspects of land consumption includes two interest groups as well as the median voter and is then econometrically tested we confirm the expected effects of certain sociodemographic determinants and highlight the impact of municipal budgetary considerations and the role of the agricultural sector we also find more counterintuitive determinants like local political regime or unbalanced neighboring relationships