Findings

Property

Kevin Lewis

February 06, 2012

Trial by Battle

Peter Leeson
Journal of Legal Analysis, Spring 2011, Pages 341-375

Abstract:
For over a century England's judicial system decided land disputes by ordering disputants' legal representatives to bludgeon one another before an arena of spectating citizens. The victor won the property right for his principal. The vanquished lost his cause and, if he were unlucky, his life. People called these combats trials by battle. This paper investigates the law and economics of trial by battle. In a feudal world where high transaction costs confounded the Coase theorem, I argue that trial by battle allocated disputed property rights efficiently. It did this by allocating contested property to the higher bidder in an all-pay auction. Trial by battle's "auctions" permitted rent seeking. But they encouraged less rent seeking than the obvious alternative: a first-price ascending-bid auction.

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The Ecological and Civil Mainsprings of Property: An Experimental Economic History of Whalers' Rules of Capture

Bart Wilson et al.
Journal of Law, Economics, & Organization, forthcoming

Abstract:
This article uses a laboratory experiment to probe the proposition that property emerges anarchically out of social custom. We test the hypothesis that whalers in the 18th and 19th centuries developed rules of conduct that minimized the sum of the transaction and production costs of capturing their prey, the primary implication being that different ecological conditions led to different rules of capture. Ceteris paribus, we find that simply imposing two different types of prey is insufficient to observe two different rules of capture. Another factor is essential, namely, as Samuel Pufendorf theorized over 300 years ago, that the members of the community are civil minded.

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Sound taxation? On the use of self-declared value

Marco Haan et al.
European Economic Review, February 2012, Pages 205-215

Abstract:
In the 16th century, foreign ships passing through the Sound had to pay ad valorem taxes, known as the Sound Dues. To give skippers an incentive to declare the true value of their cargo, the Danish Crown reserved the right to purchase it at the declared value. We show that this rule does not induce truth-telling, but does allow the authorities to effectively implement a given tax rate.

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Institutional reversals and economic growth: Palestine 1516-1948

Andrew Schein
Journal of Institutional Economics, March 2012, Pages 119-141

Abstract:
This study examines the type and quality of institutions in Palestine and the correlation between the institutions and economic growth in Palestine from 1516 to 1948. Initially in the 16th century, with the Ottoman conquest of the area, institutions in Palestine involved de facto private user-rights. The level of expropriation by elites was low, and this enabled the people to develop the lands that they had acquired the right to cultivate. In the 17th and 18th centuries, with the exception of the Galilee in the middle of the 18th century, institutions became extractive due to tax farming, rapacious governors and Bedouin raids. From the middle of the 19th century until 1948, there was a second reversal back to private property institutions, first slowly until the First World War, and then more rapidly under the British Mandate after the First World War. When there were private property institutions the economy prospered, while when there were extractive institutions, the economy stagnated.

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Perception vs. reality: The relationship between low-income homeownership, perceived financial stress, and financial hardship

Kim Manturuk, Sarah Riley & Janneke Ratcliffe
Social Science Research, March 2012, Pages 276-286

Abstract:
This research examines how homeowners and renters were impacted by the financial crisis in 2009. We build from the hypothesis that homeownership provides people a sense of stability which decreases the extent to which they feel stressed as a result of financial hardship. Our study tests whether owning a home affected either the degree to which lower-income households experienced financial hardship or the extent to which they perceived they were financially stressed. Using a sample of lower-income borrowers who obtained affordable mortgages through the Community Advantage Program (CAP) and a comparison panel of renters, we collected data on the effects of the financial crisis. From a portfolio performance standpoint, CAP loans have performed relatively well. Our analysis of the survey data finds that, although both renters and owners experienced similar levels of financial hardship, the homeowners were less psychologically stressed overall and reported feeling more satisfied with their financial situation.

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Should you pay off your mortgage or invest?

Valentina Michelangeli
Economics Letters, May 2012, Pages 322-324

Abstract:
The mortgage payoff dilemma affects many retirees that have enough financial assets to pay off their mortgage. I find that, on average, retirees with less than $300,000 in non-housing financial wealth are better off keeping the mortgage and investing.

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Do Borrower Rights Improve Borrower Outcomes? Evidence from the Foreclosure Process

Kristopher Gerardi, Lauren Lambie-Hanson & Paul Willen
NBER Working Paper, December 2011

Abstract:
We evaluate laws designed to protect borrowers from foreclosure. We find that these laws delay but do not prevent foreclosures. We first compare states that require lenders to seek judicial permission to foreclose with states that do not. Borrowers in judicial states are no more likely to cure and no more likely to renegotiate their loans, but the delays lead to a build-up in these states of persistently delinquent borrowers, the vast majority of whom eventually lose their homes. We next analyze a "right-to-cure" law instituted in Massachusetts on May 1, 2008. Using a difference-in-differences approach to evaluate the effect of the policy, we compare Massachusetts with neighboring states that did not adopt similar laws. We find that the right-to-cure law lengthens the foreclosure timeline but does not lead to better outcomes for borrowers.

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A Crisis of What? Mortgage Credit Markets and the Social Policy of Promoting Homeownership in the United States and in Europe

Waltraud Schelkle
Politics & Society, March 2012, Pages 59-80

Abstract:
The crisis of 2007-09 was prefigured by bubbles in the housing and mortgage credit markets of major Organisation for Economic Co-operation and Development (OECD) countries. A comparison of the United States, the United Kingdom, and France reveals that, contrary to popular perception, the two European countries had a bigger housing price bubble, more volatility, and a more short-termist mortgage market. Yet, the fallout of the crisis - in terms of overindebtedness of mortgage holders, foreclosures of homes, and the extent to which the "nest-eggs" of households were devalued - has been worse in the United States. This article explores which differences in the use of credit markets for the social policy of promoting homeownership can account for this puzzling finding.

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Tax Incentives for Homeownership and the Provision of Local Public Services

Kelly Edmiston & Kenneth Spong
Public Finance Review, January 2012, Pages 116-144

Abstract:
There is a substantial literature that assesses the distributional impact of the mortgage interest and state and local property tax deductions and the disparate incentives for buying a home across income groups, but virtually no work exists that evaluates the secondary effect on the provision of local public services. In this paper we evaluate the impact that disparate homeowner tax subsidies have on the provision of local public services, specifically, schools. Performing a path analysis, we find that a 100 percent increase in the average homeowner tax subsidy yields a ten percent increase in local public school spending per student.

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After the Fall: An Ex Post Characterization of Housing Price Declines across Metropolitan Areas

Richard Carson & Samuel Dastrup
Contemporary Economic Policy, forthcoming

Abstract:
Housing prices have plummeted across the United States. This article examines differences in the magnitude of housing price decreases across metropolitan areas. A small number of housing market variables observable before the fall are capable of explaining over 70% of the considerable variation in price declines. An additional non-parametric analysis suggests that exceeding particular thresholds for some of the key predictors is associated with much larger price drops. These findings are consistent with historical price patterns, which raises questions about the validity of mortgage pricing policy and risk diversification norms in the United States. The analysis points to a set of stylized facts concerning the housing price bubble that need to be explained and suggests fruitful hypotheses for understanding the dramatic housing price declines.

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Housing, the Welfare State, and the Global Financial Crisis: What is the Connection?

Herman Schwartz
Politics & Society, March 2012, Pages 35-58

Abstract:
Analyses of the global financial crisis that assign causality to the erosion of parts of the welfare state that protected individuals miss the importance of macro level regulation that protected firms and the financial system from itself. Post-Depression macro level regulation of finance prevented the emergence of mismatched maturities where deposits lacked state guarantees, and thus prevented runs on banks or near-banks. A balance sheet approach shows that macro regulation linked long duration liabilities in housing finance (mortgages) to long duration assets (pensions). Deregulation permitted the reemergence of mismatched maturities, providing both a necessary and sufficient condition for the current financial crisis.

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The Determinants of Attitudes towards Strategic Default on Mortgages

Luigi Guiso, Paola Sapienza & Luigi Zingales
Journal of Finance, forthcoming

Abstract:
We use survey data to measure households' propensity to default on mortgages even if they can afford to pay them (strategic default) when the value of the mortgage exceeds the value of the house. The willingness to default increases both in the absolute and in the relative size of the home-equity shortfall. Our evidence suggests that this willingness is affected both by pecuniary and non-pecuniary factors, such as views about fairness and morality. We also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued.

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The tradeoff of the commons

Preston McAfee & Alan Miller
Journal of Public Economics, April 2012, Pages 349-353

Abstract:
We develop a model of scarce, renewable resources to study the commons problem. We show that, contrary to conventional wisdom, property rights can often be less efficient than a commons. In particular, we study two effects: (1) waste which arises when individuals expend resources to use a resource unavailable due to congestion and (2) the risk of underutilization of the resource. We provide necessary and sufficient conditions for each effect to dominate the other when the cost of determining the availability of a resource is low.

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Revealed Preference for Relative Status: Evidence from the Housing Market

Susane Leguizamon & Justin Ross
Journal of Housing Economics, forthcoming

Abstract:
This paper investigates the value individuals place on their relative housing consumption as compared to absolute housing consumption. Using observed housing sales from three Ohio MSAs in 2000, a spatial Durbin hedonic price model provides total marginal willingness-to-pay estimates for both characteristics of housing units and those of its neighbors. Using this revealed-preference approach, we find evidence suggesting individuals do value relative house size, but the absolute effect dominates. For instance, the estimates indicate that if all homes in Columbus were to increase in size by 100 square feet, the net effect of impacts on absolute and relative consumption would be to increase house prices by $605 on average. This stands in contrast to the stated preference literature, which frequently find individuals to be willing to forgo absolute well-being in exchange for relative status gains.

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Voting on a NIMBY Facility: Proximity Cost of an "Iconic" Stadium

Gabriel Ahlfeldt & Wolfgang Maennig
Urban Affairs Review, forthcoming

Abstract:
This paper provides a spatial analysis at precinct level of the 2001 referendum of the Allianz Arena, a professional soccer stadium in Munich in Germany. While at the city level voters clearly supported the sports arena, voters in proximity of the proposed site opposed the project. Voters in proximity of an alternative site instead supported the project. We conclude that residents expected net costs of proximity to stadia and engaged in the referendum in order to shift the stadium away from their neighborhood. These findings indicate that sport facilities may exhibit a NIMBY (Not In My Backyard) character, which stands in contrast to the evidence available for the United States. Proximity costs and benefits of sports facilities apparently vary across sports and countries.


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