A Signaling-Screening Equilibrium in the Mortgage Market

Danny Ben-Shahar and David Feldman

ERES from European Real Estate Society (ERES)

Abstract: 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 ìbuyî 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.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2001-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://eres.architexturez.net/doc/oai-eres-id-eres2001-117 (text/html)
https://eres.architexturez.net/system/files/pdf/eres2001_117.content.pdf (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2001_117

Access Statistics for this paper

More papers in ERES from European Real Estate Society (ERES) Contact information at EDIRC.
Bibliographic data for series maintained by Architexturez Imprints ().