Horizontal product differentiation,prices and quantity selection of a multi-product monopolist

A monopolist which serves a market in which tastes are uniformly spread along a circumference of a circle selects an optimal set of product varieties. The cost of installing an additional variety increases with the difference from the ‘main product’. It is shown that variety prices decrease and the degree of differentiation between any two varieties increases as products get more differentiated.     

Pricing Effects of the Decision to Sell or Hold Adjustable Rate Mortgage Loans in a Portfolio

Residential mortgage originators can transfer loans to ultimate lenders quickly and efficiently using the secondary mortgage market. Some adjustable rate mortgage (ARM) lenders use this outlet consistently while others hold whole loans in their portfolios on a long-term basis. Selling and holding lenders should respond to different economic factors when setting yields on ARM loans originated because their long-term positions in the loans are so diverse. This paper develops and tests a model of differential pricing behavior for selling and holding strategies. Empirical results support the notion that lenders use different factors to price loans and that these factors are related to the risks faced by the originating lender given its origination strategy. Additional findings suggest that institutional and firm-specific pricing tendencies exist in the primary mortgage market for adjustable rate debt.     

Real Estate Versus Financial Wealth in Consumption

The consumption function for the U.S. economy is estimated with real estate and financial wealth for quarterly data for 1952:1–2001:4. An additional dollar of real estate wealth increases consumption by 8 cents in the current year, as compared with only 2 cents for financial wealth. The results are consistent with theoretical bounds on the marginal propensity to consume from aggregate wealth. The decline in the stock market during 2000–2001 had a limited impact on aggregate demand in part because of an offsetting real estate wealth effect.     

The information content of litigation participation securities: the case of CalFed Bancorp

CalFed Bancorp is one of 126 S&Ls suing the U.S. government for breach of contract related to supervisory goodwill, a form of goodwill created by the acquisition of insolvent thrifts during the early 1980s. Before a determination of damages in its lawsuit, CalFed announced and issued a litigation participation security giving shareholders a proportional claim on recovered damages, if any. This announcement generated a positive excess return in part because it made CalFed a more likely acquisition target. Trading in the security also reveals important, yet previously unavailable, information about CalFed's lawsuit: its price reveals a market-based estimate of damages while its beta reveals information regarding expected returns and trial duration. In a broader context, this paper identifies acquisition facilitation as a benefit of issuing targeted stock and highlights a series of lawsuits that will set important precedents regarding the determination of liability and the estimation of damages in breach of contract cases.     

Controlling the incentive problems in real estate leasing

This paper develops a formal model that characterizes potential conflicts of interest between real-estate landlords and tenants. The model demonstrates a tenant's incentive to undermaintain or overuse (i.e., abuse) a leased property while highlighting the moral hazard problem as a cause of the failure of the lease irrelevance proposition. As a consequence, the lease irrelevance proposition's faiure implies that if tenant abuse incentives are left unrestricted, the market for leased real estate may cease to function.The efficacies of various lease arrangements suggested by Smith and Wakeman (1985) and other researchers in controlling the tenant abuse incentives are evaluated in this framework as a means of counteracting the inherent problems. Our analysis supports the greater use of variable lease schemes (e.g., security deposits and penalty clauses), which peg real-estate lease rates to the level of property abuse rather than more traditional fixed payment contracting arrangements.