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Lemons With A Twist: Adverse Selection And The Role Of Securitization In Mortgage Market Evolution

Author

Listed:
  • Amy C. Cutts
  • Robert A. Van Order
  • Peter Zorn

Abstract

This paper models the development of the secondary market as a way of trading off its lower cost of securitization with adverse selection due to asymmetric information and high monitoring costs. We use a simple adverse selection model in the tradition of Akerlof (1970) with successive modifications, including licensing contracts similar to those of Leland (1979) and Chan and Leland (1982), to explain the evolution of the secondary market and discuss implications for the future, particularly as information improves.

Suggested Citation

  • Amy C. Cutts & Robert A. Van Order & Peter Zorn, 2000. "Lemons With A Twist: Adverse Selection And The Role Of Securitization In Mortgage Market Evolution," ERES eres2000_118, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2000_118
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2000-118
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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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