Agency and Incentives: Vertical Integration in the Mortgage Foreclosure Industry

Lauren Lambie-Hanson () and Timothy Lambie-Hanson ()
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Lauren Lambie-Hanson: Federal Reserve Bank of Philadelphia
Timothy Lambie-Hanson: Haverford College

Review of Industrial Organization, 2017, vol. 51, issue 1, No 1, 24 pages

Abstract: Abstract In many U.S. states, the law firms that represent lenders in foreclosure proceedings must hire auctioneers to carry out the foreclosure auctions. We 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. We find that independent firms are able initially to schedule auctions more quickly; however, 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. We argue that this is evidence of a cost of integration that stems from poorly aligned incentives within the firm.

Keywords: Vertical integration; Make-or-buy; Mortgage foreclosure; Foreclosure auctions (search for similar items in EconPapers)
JEL-codes: D23 G21 G28 L22 L85 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11151-016-9538-8

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