Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania最新文献
This paper studies how a financial system that is organized to efficiently create safe assets responds to macroeconomic shocks. Financial intermediaries face a cost of bearing risk, so they choose the least risky portfolio that backs their issuance of riskless deposits: a diversified pool of nonfinancial firms' debt. Nonfinancial firms choose their capital structure to exploit the resulting segmentation between debt and equity markets. Increased safe asset demand yields larger and riskier intermediaries and more levered firms. Quantitative easing reduces the size and riskiness of intermediaries and can decrease firm leverage, despite reducing borrowing costs at the zero lower bound.
{"title":"Safety Transformation and the Structure of the Financial System","authors":"W. Diamond","doi":"10.2139/ssrn.3219332","DOIUrl":"https://doi.org/10.2139/ssrn.3219332","url":null,"abstract":"This paper studies how a financial system that is organized to efficiently create safe assets responds to macroeconomic shocks. Financial intermediaries face a cost of bearing risk, so they choose the least risky portfolio that backs their issuance of riskless deposits: a diversified pool of nonfinancial firms' debt. Nonfinancial firms choose their capital structure to exploit the resulting segmentation between debt and equity markets. Increased safe asset demand yields larger and riskier intermediaries and more levered firms. Quantitative easing reduces the size and riskiness of intermediaries and can decrease firm leverage, despite reducing borrowing costs at the zero lower bound.","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"22 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-04-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82789444","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using French administrative data on job-creating entrepreneurs, I estimate a life-cycle model in which risk-averse individuals can start businesses and return to paid employment. I estimate that the unobserved benefits of entrepreneurship represent 6,100 pre-tax euros per year (some 15% of profits), which adds up to 67,000 euros over the average entrepreneurial spell. For new entrepreneurs, the option of returning to paid employment is worth 82,000 euros. The main source of option value is not the unobserved heterogeneity in entrepreneurial abilities but rather the random-walk component of productivity. Together, unobserved benefits and this option value explain 42% of firm creations.
{"title":"Keeping Options Open: What Motivates Entrepreneurs?","authors":"S. Catherine","doi":"10.2139/ssrn.3274879","DOIUrl":"https://doi.org/10.2139/ssrn.3274879","url":null,"abstract":"Using French administrative data on job-creating entrepreneurs, I estimate a life-cycle model in which risk-averse individuals can start businesses and return to paid employment. I estimate that the unobserved benefits of entrepreneurship represent 6,100 pre-tax euros per year (some 15% of profits), which adds up to 67,000 euros over the average entrepreneurial spell. For new entrepreneurs, the option of returning to paid employment is worth 82,000 euros. The main source of option value is not the unobserved heterogeneity in entrepreneurial abilities but rather the random-walk component of productivity. Together, unobserved benefits and this option value explain 42% of firm creations.","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"16 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86710841","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Antitrust in the United States today is caught between its pursuit of technical rules designed to define and implement defensible economic goals, and increasing calls for a new antitrust “movement.” The goals of this movement have been variously defined as combating industrial concentration, limiting the economic or political power of large firms, correcting the maldistribution of wealth, control of high profits, increasing wages, or protection of small business. High output and low consumer prices are typically unmentioned. In the 1960s the great policy historian Richard Hofstadter lamented the passing of the antitrust “movement” as one of the “faded passions of American reform.” In its early history, he observed, antitrust had a powerful movement quality but very little success in the courts. Later, it ceased to be a movement just as it was attaining litigation success. As a movement, antitrust often succeeds at capturing political attention, but it fails at making effective – or even coherent – policy. The coherence problem shows up in goals that are both unmeasurable and fundamentally inconsistent, but with their contradictions rarely exposed. Among the most problematic contradictions is the one between small business protection and consumer welfare. Consumers benefit from low prices, high output and high quality and variety of products and services. But when a firm is able to offer these things it invariably injures rivals -- typically smaller firms or those dedicated to older technologies. Although movement antitrust rhetoric is often opaque about specifics, its general effect is invariably to encourage higher prices or reduced output or innovation, mainly for the protection of small business or firms dedicated to older technologies. Indeed, some spokespersons for movement antitrust write as if low prices are the evil that antitrust law should be combating. This piece sets out to do three things. First it describes so-called “movement” antitrust, focusing on recent writings disparaging consumer welfare in favor of alternatives that seek to protect small business welfare, redistribute wealth, or pursue other goals. Then it describes the fundamental contours of technical antitrust, whose stated goal is the protection of high output and low prices, and explains why this approach is much more consistent with concerns about economic rationality, due process, administrability, and federalism. Finally, it examines several areas where technical antitrust rules could be improved, focusing mainly on merger policy and one particularly problematic area, which is antitrust’s historical failure to deal adequately with monopsony power in labor markets.
{"title":"Whatever Did Happen to the Antitrust Movement?","authors":"Herbert Hovenkamp","doi":"10.2139/ssrn.3097452","DOIUrl":"https://doi.org/10.2139/ssrn.3097452","url":null,"abstract":"Antitrust in the United States today is caught between its pursuit of technical rules designed to define and implement defensible economic goals, and increasing calls for a new antitrust “movement.” The goals of this movement have been variously defined as combating industrial concentration, limiting the economic or political power of large firms, correcting the maldistribution of wealth, control of high profits, increasing wages, or protection of small business. High output and low consumer prices are typically unmentioned. \u0000 \u0000In the 1960s the great policy historian Richard Hofstadter lamented the passing of the antitrust “movement” as one of the “faded passions of American reform.” In its early history, he observed, antitrust had a powerful movement quality but very little success in the courts. Later, it ceased to be a movement just as it was attaining litigation success. As a movement, antitrust often succeeds at capturing political attention, but it fails at making effective – or even coherent – policy. The coherence problem shows up in goals that are both unmeasurable and fundamentally inconsistent, but with their contradictions rarely exposed. Among the most problematic contradictions is the one between small business protection and consumer welfare. Consumers benefit from low prices, high output and high quality and variety of products and services. But when a firm is able to offer these things it invariably injures rivals -- typically smaller firms or those dedicated to older technologies. Although movement antitrust rhetoric is often opaque about specifics, its general effect is invariably to encourage higher prices or reduced output or innovation, mainly for the protection of small business or firms dedicated to older technologies. Indeed, some spokespersons for movement antitrust write as if low prices are the evil that antitrust law should be combating. \u0000 \u0000This piece sets out to do three things. First it describes so-called “movement” antitrust, focusing on recent writings disparaging consumer welfare in favor of alternatives that seek to protect small business welfare, redistribute wealth, or pursue other goals. Then it describes the fundamental contours of technical antitrust, whose stated goal is the protection of high output and low prices, and explains why this approach is much more consistent with concerns about economic rationality, due process, administrability, and federalism. Finally, it examines several areas where technical antitrust rules could be improved, focusing mainly on merger policy and one particularly problematic area, which is antitrust’s historical failure to deal adequately with monopsony power in labor markets.","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"4 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75307531","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Problem definition: Gig economy companies benefit from labor flexibility by hiring independent workers in response to real-time demand. However, workers’ flexibility in their work schedule poses a great challenge in terms of planning and committing to a service capacity. Understanding what motivates gig economy workers is thus of great importance. In collaboration with a ride-hailing platform, we study how on-demand workers make labor decisions; specifically, whether to work and work duration. Our model revisits competing theories of labor supply regarding the impact of financial incentives and behavioral motives on labor decisions. We are interested in both improving how to predict the behavior of flexible workers and understanding how to design better incentives. Methodology/results: Using a large comprehensive data set, we develop an econometric model to analyze workers’ labor decisions and responses to incentives while accounting for sample selection and endogeneity. We find that financial incentives have a significant positive influence on the decision to work and on the work duration—confirming the positive income elasticity posited by the standard income effect. We also find support for a behavioral theory as workers exhibit income-targeting behavior (working less when reaching an income goal) and inertia (working more after working for a longer period). Managerial implications: We demonstrate via numerical experiments that incentive optimization based on our insights can increase service capacity by 22% without incurring additional cost, or maintain the same capacity at a 30% lower cost. Ignoring behavioral factors could lead to understaffing by 10%–17% below the optimal capacity level. Lastly, our insights inform the design of platform strategy to manage flexible workers amidst an intensified competition among gig platforms. Funding: This study was supported by The Jay H. Baker Retailing Center, The William and Phyllis Mack Institute for Innovation Management, The Wharton Risk Management and Decision Processes Center, and The Fishman-Davidson Center for Service and Operations Management. Supplemental Material: The online appendices are available at https://doi.org/10.1287/msom.2023.1191 .
{"title":"The Impact of Behavioral and Economic Drivers on Gig Economy Workers","authors":"Gad Allon, Maxime C. Cohen, W. Sinchaisri","doi":"10.2139/ssrn.3274628","DOIUrl":"https://doi.org/10.2139/ssrn.3274628","url":null,"abstract":"Problem definition: Gig economy companies benefit from labor flexibility by hiring independent workers in response to real-time demand. However, workers’ flexibility in their work schedule poses a great challenge in terms of planning and committing to a service capacity. Understanding what motivates gig economy workers is thus of great importance. In collaboration with a ride-hailing platform, we study how on-demand workers make labor decisions; specifically, whether to work and work duration. Our model revisits competing theories of labor supply regarding the impact of financial incentives and behavioral motives on labor decisions. We are interested in both improving how to predict the behavior of flexible workers and understanding how to design better incentives. Methodology/results: Using a large comprehensive data set, we develop an econometric model to analyze workers’ labor decisions and responses to incentives while accounting for sample selection and endogeneity. We find that financial incentives have a significant positive influence on the decision to work and on the work duration—confirming the positive income elasticity posited by the standard income effect. We also find support for a behavioral theory as workers exhibit income-targeting behavior (working less when reaching an income goal) and inertia (working more after working for a longer period). Managerial implications: We demonstrate via numerical experiments that incentive optimization based on our insights can increase service capacity by 22% without incurring additional cost, or maintain the same capacity at a 30% lower cost. Ignoring behavioral factors could lead to understaffing by 10%–17% below the optimal capacity level. Lastly, our insights inform the design of platform strategy to manage flexible workers amidst an intensified competition among gig platforms. Funding: This study was supported by The Jay H. Baker Retailing Center, The William and Phyllis Mack Institute for Innovation Management, The Wharton Risk Management and Decision Processes Center, and The Fishman-Davidson Center for Service and Operations Management. Supplemental Material: The online appendices are available at https://doi.org/10.1287/msom.2023.1191 .","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"31 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-10-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86739464","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
It is common to evaluate mutual fund (and in general, security) returns by linear factor models. However, performance measures from these models are misleading if there are some omitted factors that explain cross-sectional variation in returns. We propose to use a latent-factor approach, Confounder Adjusted Testing and Estimation (CATE), for performance evaluation. Under reasonable economic assumptions, we show that CATE can consistently separate "alpha" from the return components that are due to common factor exposures, without forcing any particular ex-ante specification of the factors. We demonstrate that CATE outperforms widely used factor models in identifying common variation in mutual fund returns and that CATE alpha positively predicts future fund performance. When ranked by the difference between CATE alpha and CAPM alpha, the most favorable measure used by mutual fund investors, we find that the top decile of funds outperforms the bottom decile by as large as 5% per year. We also find that mutual fund flows become less responsive to returns due to the size, value, and momentum factors over time, yet respond persistently to other factor-related variation.
{"title":"Performance Evaluation with Latent Factors","authors":"Yang Song, Qingyuan Zhao","doi":"10.2139/ssrn.3216272","DOIUrl":"https://doi.org/10.2139/ssrn.3216272","url":null,"abstract":"It is common to evaluate mutual fund (and in general, security) returns by linear factor models. However, performance measures from these models are misleading if there are some omitted factors that explain cross-sectional variation in returns. We propose to use a latent-factor approach, Confounder Adjusted Testing and Estimation (CATE), for performance evaluation. Under reasonable economic assumptions, we show that CATE can consistently separate \"alpha\" from the return components that are due to common factor exposures, without forcing any particular ex-ante specification of the factors. We demonstrate that CATE outperforms widely used factor models in identifying common variation in mutual fund returns and that CATE alpha positively predicts future fund performance. When ranked by the difference between CATE alpha and CAPM alpha, the most favorable measure used by mutual fund investors, we find that the top decile of funds outperforms the bottom decile by as large as 5% per year. We also find that mutual fund flows become less responsive to returns due to the size, value, and momentum factors over time, yet respond persistently to other factor-related variation.","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-07-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73277708","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper provides evidence that financial reporting quality (FRQ) influences the holding costs of trading strategies. While prior research has focused on the benefits of investment strategies based on poor FRQ (i.e., larger returns due to a greater amount of private information), we examine whether poor FRQ imposes greater holding costs on certain trading strategies. We show that poor FRQ motivates sophisticated investors with short-term horizons to tilt their portfolios away from value stocks, whose returns are contingent on investors revising their beliefs about firm fundamental value, and toward past winner stocks, whose future returns are realized more quickly. Poor FRQ also increases the length of time that institutions maintain large positions in value stocks. Our results imply that mis-valuations can be persistent when arbitrageurs perceive high holding costs from poor financial quality, even when they can see through the opaque financial disclosures.
{"title":"Financial Reporting Quality, Investment Horizon, and Institutional Investor Trading Strategies","authors":"Brian J. Bushee, Theodore H. Goodman, S. Sunder","doi":"10.2139/ssrn.3207369","DOIUrl":"https://doi.org/10.2139/ssrn.3207369","url":null,"abstract":"\u0000 This paper provides evidence that financial reporting quality (FRQ) influences the holding costs of trading strategies. While prior research has focused on the benefits of investment strategies based on poor FRQ (i.e., larger returns due to a greater amount of private information), we examine whether poor FRQ imposes greater holding costs on certain trading strategies. We show that poor FRQ motivates sophisticated investors with short-term horizons to tilt their portfolios away from value stocks, whose returns are contingent on investors revising their beliefs about firm fundamental value, and toward past winner stocks, whose future returns are realized more quickly. Poor FRQ also increases the length of time that institutions maintain large positions in value stocks. Our results imply that mis-valuations can be persistent when arbitrageurs perceive high holding costs from poor financial quality, even when they can see through the opaque financial disclosures.","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"42 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90174784","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I investigate the impact of bank capital requirements in a business cycle model with corporate debt choice. Compared to non-bank investors, banks provide restructurable loans that reduce firm bankruptcy losses and enhance production efficiency. Raising capital requirements eliminates deposit insurance distortions but also deposit tax shields. As a result, firms cut back on both bank and non-bank borrowing while going bankrupt more frequently. Implementing an optimal capital ratio of 11 percent in the US produces limited marginal impacts on aggregate quantities and welfare.
{"title":"Corporate Debt Choice and Bank Capital Regulation","authors":"Haotian Xiang","doi":"10.2139/ssrn.2882235","DOIUrl":"https://doi.org/10.2139/ssrn.2882235","url":null,"abstract":"I investigate the impact of bank capital requirements in a business cycle model with corporate debt choice. Compared to non-bank investors, banks provide restructurable loans that reduce firm bankruptcy losses and enhance production efficiency. Raising capital requirements eliminates deposit insurance distortions but also deposit tax shields. As a result, firms cut back on both bank and non-bank borrowing while going bankrupt more frequently. Implementing an optimal capital ratio of 11 percent in the US produces limited marginal impacts on aggregate quantities and welfare.","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"70 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-03-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88310441","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Presentation with emphasis on the challenges of designing bank resolution procedures that minimize contagion and have credibility with respect to large banks.
重点介绍设计银行清算程序的挑战，以最大限度地减少传染，并在大型银行中具有可信度。
{"title":"Making Bankruptcy Work: Living Wills & the Liquidity Challenge (Presentation Slides)","authors":"R. Herring","doi":"10.2139/ssrn.3048513","DOIUrl":"https://doi.org/10.2139/ssrn.3048513","url":null,"abstract":"Presentation with emphasis on the challenges of designing bank resolution procedures that minimize contagion and have credibility with respect to large banks.","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"18 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-05-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86974261","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper revisits the mortgage interest deduction (MID) in the U.S. and its distribution across households using ZIP-code level data from the IRS Statistics of Income. Since the Great Recession, the total and average amount of mortgage interest deducted has fallen significantly along with the number of deduction claimants as the home-ownership rate has declined dramatically since the peak of the mid-2000’s housing boom. We also use housing supply as an instrumental variable to better understand how geographic dispersion in housing prices can account for variation in ZIP-code average MID claims. While housing tax benefits are concentrated in high-income areas and regions with inelastic supply, the dollar share of the MID has fallen among the wealthy since the housing bust. We further discuss the implications for policy changes such as the prospects of capping or eliminating the MID or relaxing zoning laws.
{"title":"The Mortgage Interest Tax Deduction and the Great Recession","authors":"Jonathan S. Hartley, J. Dorf","doi":"10.2139/ssrn.3134107","DOIUrl":"https://doi.org/10.2139/ssrn.3134107","url":null,"abstract":"This paper revisits the mortgage interest deduction (MID) in the U.S. and its distribution across households using ZIP-code level data from the IRS Statistics of Income. Since the Great Recession, the total and average amount of mortgage interest deducted has fallen significantly along with the number of deduction claimants as the home-ownership rate has declined dramatically since the peak of the mid-2000’s housing boom. We also use housing supply as an instrumental variable to better understand how geographic dispersion in housing prices can account for variation in ZIP-code average MID claims. While housing tax benefits are concentrated in high-income areas and regions with inelastic supply, the dollar share of the MID has fallen among the wealthy since the housing bust. We further discuss the implications for policy changes such as the prospects of capping or eliminating the MID or relaxing zoning laws.","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83694229","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The US housing boom was accompanied by a rise in mortgage leverage. The subsequent bust was accompanied by a rise in foreclosure. This paper introduces a dynamic general equilibrium model to study how leverage and foreclosure affect house prices. The model shows how foreclosure sales, through their effect on housing supply, amplify and propagate house price drops. A calibration to match the bust shows consumption and housing need to be sufficiently complementary to fit the data. Since leverage plays a key role in foreclosure, a regulator can reduce systemic risk by placing a cap on leverage. Counterfactual experiments show that in a world with less leverage, the same economic shock leads to less foreclosure and less severe, shorter busts in house prices. A 90% cap on loan-to-value ratios in 2006 predicts house prices would have fallen 12% rather than 18% as in the data. The regulator faces a trade-off in that less leverage means less housing for constrained households, but also fewer foreclosures and less severe busts in house prices. A regulator with reasonable preference parameters would choose a cap of 95%.
{"title":"Regulating Mortgage Leverage: Fire Sales, Foreclosure Spirals and Pecuniary Externalities","authors":"A. Zevelev","doi":"10.2139/ssrn.2524764","DOIUrl":"https://doi.org/10.2139/ssrn.2524764","url":null,"abstract":"The US housing boom was accompanied by a rise in mortgage leverage. The subsequent bust was accompanied by a rise in foreclosure. This paper introduces a dynamic general equilibrium model to study how leverage and foreclosure affect house prices. The model shows how foreclosure sales, through their effect on housing supply, amplify and propagate house price drops. A calibration to match the bust shows consumption and housing need to be sufficiently complementary to fit the data. Since leverage plays a key role in foreclosure, a regulator can reduce systemic risk by placing a cap on leverage. Counterfactual experiments show that in a world with less leverage, the same economic shock leads to less foreclosure and less severe, shorter busts in house prices. A 90% cap on loan-to-value ratios in 2006 predicts house prices would have fallen 12% rather than 18% as in the data. The regulator faces a trade-off in that less leverage means less housing for constrained households, but also fewer foreclosures and less severe busts in house prices. A regulator with reasonable preference parameters would choose a cap of 95%.","PeriodicalId":80976,"journal":{"name":"Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania","volume":"57 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-03-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76926005","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Comparative labor law journal : a publication of the U.S. National Branch of the International Society for Labor Law and Social Security [and] the Wharton School, and the Law School of the University of Pennsylvania
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