Economics at your fingertips  

Mortgage Debt and Social Externalities

Cristian Badarinza
Additional contact information
Cristian Badarinza: National University of Singapore

Review of Economic Dynamics, 2019, vol. 34, 43-60

Abstract: In an attempt to keep up with the social standards defined by their peer group, households can use long-term collateralized lending to finance purchases of goods that signal social value – most notably, real estate. Because in the social status game somebody's advance is always somebody else's regress, this behavior can lead to inefficient allocations, making the economy as a whole more financially vulnerable. In this paper, we show that prudential policy taking the form of collateral constraints can mitigate the negative consequences of social arms races, and potentially improve household welfare. We introduce preferences for social status in a calibrated life cycle framework with heterogeneous agents, and find that positional concerns lead to a higher build-up of debt and a net loss of resources. In equilibrium, the optimal collateral policy results from the trade-off between a usual purely distortionary effect, and the negative social externalities of over-borrowing. (Copyright: Elsevier)

Keywords: Mortgage debt; Social status; Financial regulation (search for similar items in EconPapers)
JEL-codes: D15 G18 G41 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See for details.

Related works:
Software Item: Code and data files for "Mortgage Debt and Social Externalities" (2019) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/

Access Statistics for this article

Review of Economic Dynamics is currently edited by Jonathan Heathcote and Vincenzo Quadrini

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

Page updated 2020-01-27
Handle: RePEc:red:issued:18-225