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Agency and Incentives: Vertical Integration in the Mortgage Foreclosure Industry

Author

Listed:
  • Lauren Lambie-Hanson

    (Federal Reserve Bank of Philadelphia)

  • Timothy Lambie-Hanson

    (Haverford College)

Abstract

In many U.S. states, the law firms that represent lenders in foreclosure proceedings must hire auctioneers to carry out the foreclosure auctions. We empirically test whether processing times differ for law firms that integrate the mortgage foreclosure auction process compared with law firms that contract with independent auction companies. We find that independent firms are able initially to schedule auctions more quickly; however, when postponements occur, they are no faster to adapt. Since firms schedule the initial auction before contracting, independent auction companies have an incentive to conform to the law firms’ schedules in order to secure the contracts. We argue that this is evidence of a cost of integration that stems from poorly aligned incentives within the firm.

Suggested Citation

  • Lauren Lambie-Hanson & Timothy Lambie-Hanson, 2017. "Agency and Incentives: Vertical Integration in the Mortgage Foreclosure Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(1), pages 1-24, August.
    • Handle: RePEc:kap:revind:v:51:y:2017:i:1:d:10.1007_s11151-016-9538-8
    DOI: 10.1007/s11151-016-9538-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Vertical integration; Make-or-buy; Mortgage foreclosure; Foreclosure auctions;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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