Waiting to Default: The Value of Delay
This paper analyzes the opportunity for early termination of a mortgage contract. We consider the possibility of defaulting on the property and explore the rules that are used by a value-maximizing borrower in exercising this option to default. The discussion centers on the value of waiting to make such a decision and the consequences of this rational inertia. We show that the observed delay in default usually attributed to transaction costs can instead be explained as entirely rational choice in a dynamic environment. Copyright American Real Estate and Urban Economics Association.
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Volume (Year): 22 (1994)
Issue (Month): 3 ()
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