A Signaling-Screening Equilibrium in the Mortgage Market
Screening equilibria, mainly those a la Rothchild-Stiglitz(1976), have been widely used to explain various aspects of mortgage contracting. In the real world, however, most mortghage contracting processes involve both signalling and screening. In this paper, we combine signalling and screening mechanisms to examine a mortgage selection process. Borrowers íbuyî different credit histories, signalling their default risk type to lenders. Credit histories, however, are imperfect signals and only partially separate borrowersí risk types, clustering them into subsets. Then, lenders screen each subset by offering a different menu. In equilibrium, safer (riskier) borrowers maintain a better (worse) credit record and choose shorter (longer) matutity and lower (higher) risk premium mortgage loan contracts. We further show that the separating signalling-screening equilibrium is Pareto superior to a corresponding screening equilibrium.
Year of publication: |
2001-06
|
---|---|
Authors: | Ben-Shahar, Danny ; Feldman, David |
Institutions: | European Real Estate Society - ERES |
Saved in:
freely available
Extent: | application/pdf text/html |
---|---|
Series: | ERES. |
Type of publication: | Book / Working Paper |
Source: |
Persistent link: https://www.econbiz.de/10011162404
Saved in favorites
Similar items by person
-
Signaling-Screening Equilibrium in the Mortgage Market.
Ben-Shahar, Danny, (2003)
-
The Value of the Rent Control Option.
Ben-Shahar, Danny, (2002)
-
The value of the rent control option
Ben-Shahar, Danny, (2002)
- More ...