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Incapacity to Pay or Moral Hazard? Public Mortgage Rates Delinquency in Chile

Author

Listed:
  • Luis Marcano

    () (Office of Evaluation and Oversight at the Interamerican Development Bank.)

  • Inder J. Ruprah

    () (Office of Evaluation and Oversight at the Interamerican Development Bank.)

Abstract

High delinquency rate of publicly provided mortgages in social housing programs are often interpreted to be due to moral hazard. In this paper we show that the typically used parametric approaches give misleading results due to overlooked confounding and selection biases. We show that by using the more appropriate impact or treatment non-parametric approach the problem of high delinquency rate in publicly provided mortgages is due to the incapacity to pay and not due to moral hazard. The results caution against public policies to encourage private mortgage providers to move down market, and suggest eliminating mortgages and correspondingly increasing the grant component of the programs.

Suggested Citation

  • Luis Marcano & Inder J. Ruprah, 2008. "Incapacity to Pay or Moral Hazard? Public Mortgage Rates Delinquency in Chile," OVE Working Papers 0308, Inter-American Development Bank, Office of Evaluation and Oversight (OVE).
  • Handle: RePEc:idb:ovewps:0308
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    Cited by:

    1. Luis Marcano & Inder J. Ruprah, 2008. "An Impact Evaluation of Chile's Progressive Housing Program," IDB Publications (Working Papers) 2896, Inter-American Development Bank.

    More about this item

    Keywords

    Moral hazard; mortgages; delinquency rate; social housing programs; confounding bias.;

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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