Agency and Incentives : Vertical Integration in the Mortgage Foreclosure Industry

In many U.S. states, the law firms that represent lenders in foreclosure proceedings must hire auctioneers to carry out the foreclosure auctions. The authors empirically test whether processing times differ for law firms that integrate the mortgage foreclosure auction process compared with law firms that contract with independent auction companies. They find that independent firms are able to initially schedule auctions more quickly, but when postponements occur, they are no faster to adapt. Since firms schedule the initial auction before contracting, independent auction companies have an incentive to conform to the law firms' schedules in order to secure the contracts. The authors argue that this is evidence of a cost of integration stemming from poorly aligned incentives within the firm