A Structural Econometric Model of Price Discrimination in the Mortgage Lending Industry

We propose a model of discrimination in the market for mortgages. The model explains accepted loan applications and determines loan sizes and interest rates simultaneously. A competitive, and a discriminating monopoly version of the model are proposed. Offered interest rates and loan sizes are a function of observable borrower characteristics. The competitive model rests on a marginal condition, re°ecting contract optimality, to which a zero-profit condition is added. In contrast, the discriminating monopoly maximizes profitsunder a borrower participation constraint, reflecting the availability of a rental market as an outside option. Each version of the model is a bivariate, nonlinear model, and is estimated by standard maximum likelihood methods. The data used for estimation is a sample of clients of a French network of mortgage lenders. We show the presence of "social discrimination" in the data, the loan conditions depending, not only on the borrower's wage and downpayment, but also on the borrower's occupational status. Abnormally high risk premia in the competitive version of the model suggest the presence of market power, justifying an attempt at estimating its monopolistic version. The discriminating monopoly model estimates show that the borrowers' price-elasticity of demand for housing varies with occupational status, and is inversely related with the lender's interest rate markups. This confirms that the lender exploits structural differences in the preferences to discriminate, as predicted by standard theories.mortgage loans, price discrimination, discriminating monopoly.

Efficient Tuition Fees, Examinations, and Subsidies (new title: Efficient tuition fees and subsidies)

We assume that students can acquire a wage premium, thanks to studies, and form a rational expectation of their future earnings, which depends on personal "ability". Students receive a private, noisy signal of their ability, and universities can condition admission decisions on the results of noisy tests. We assume first that universities are maximizing social surplus, and contrast the results with those obtained when they are profit maximizers. If capital markets are perfect, and if test results are public knowledge, then the optimal tuition fee is greater than marginal cost, and there is no sorting on the basis of test scores. Students optimally self-select as a result of pricing only. If capital markets are perfect but asymmetries of information are bilateral, i.e., if universities observe a private signal of each student's ability, or if there are borrowing constraints, then the optimal policy involves a mix of pricing and pre-entry selection on the basis of test scores. Optimal tuition can then be set below marginal cost, and can even become negative, if the precision of the university's private assessment of students' abilities is high enough.tuition fees, examinations, state subsidies, higher education, incomplete information

Sharing Budgetary Austerity under Free Mobility and Asymmetric Information: An Optimal Regulation Approach to Fiscal Federalism

In the present article, Tiebout meets Laffont and Tirole in the land of Fiscal Federalism. We use a non-trivial Principal-Multi-Agent model to characterize the optimal intergovernmental grant schedule, when the cost of local public goods depends on hidden characteristics and actions of local governments, and under citizen free mobility. We show that local governments earn informational rents, and how optimal local taxes, public good production levels and land prices are jointly distorted at the second-best optimum, as a consequence of free mobility and asymmetric information. The effect of informational asymmetries is to decrease the average production of public goods and to increase the inter-jurisdictional variance of taxes and public-good production.asymmetric information, Principal-Agent model, public budget deficits, free-mobility equilibrium, fiscal federalism

A Structural Econometric Model of Price Discrimination in the Mortgage Lending Industry

We propose a model of discrimination in the market for mortgages. The model explains accepted loan applications and determines loan sizes and interest rates simultaneously. A competitive, and a discriminating monopoly version of the model are proposed. Offered interest rates and loan sizes are a function of observable borrower characteristics. The competitive model rests on a marginal condition, re°ecting contract optimality, to which a zero-profit condition is added. In contrast, the discriminating monopoly maximizes profitsunder a borrower participation constraint, reflecting the availability of a rental market as an outside option. Each version of the model is a bivariate, nonlinear model, and is estimated by standard maximum likelihood methods. The data used for estimation is a sample of clients of a French network of mortgage lenders. We show the presence of social discrimination in the data, the loan conditions depending, not only on the borrower's wage and downpayment, but also on the borrower's occupational status. Abnormally high risk premia in the competitive version of the model suggest the presence of market power, justifying an attempt at estimating its monopolistic version. The discriminating monopoly model estimates show that the borrowers' price-elasticity of demand for housing varies with occupational status, and is inversely related with the lender's interest rate markups. This confirms that the lender exploits structural differences in the preferences to discriminate, as predicted by standard theories

The Evaluation of Pension Reforms in the Public Sector: A Case Study of the Paris Subway Drivers

To evaluate pension reforms in public services, we put forward a simple criterion, the actuarial cost of a worker, per year of service. This measure of cost is the expected, discounted sum of net real wages and pension benefits, earned by a worker over his entire life cycle, divided by the number of years of service. We show the possibility of reforms such that (i), the actuarial cost of a worker per year of service is reduced, (ii) the utility of workers does not decrease and (iii) the pension fund deficits do not increase. Workers can willingly postpone retirement in exchange for increased final salaries and pensions. Present and future public subsidies may at the same time be reduced. We propose a quantitative analysis of the 2008 reform of the Paris Metro pensions. Focusing on the case of train drivers, we show that the reform should save public funds, but only in the long run. During a long transition period, the reform is likely to end up with larger State subsidies to the pension scheme. The reform can be interpreted as a deal between public authorities and insiders at the expense of recent recruits. A reform preserving the public budget from an outright increase in social costs could have been both technically feasible and politically acceptable

Efficient Tuition Fees, Examinations, and Subsidies

We assume that students can acquire a wage premium, thanks to studies, and form a rational expectation of their future earnings, which depends on personal ability. Students receive a private, noisy signal of their ability, and universities can condition admission decisions on the results of noisy tests. We assume first that universities are maximizing social surplus, and contrast the results with those obtained when they are profit maximizers. If capital markets are perfect, and if test results are public knowledge, then the optimal tuition fee is greater than marginal cost, and there is no sorting on the basis of test scores. Students optimally self-select as a result of pricing only. If capital markets are perfect but asymmetries of information are bilateral, i.e., if universities observe a private signal of each student's ability, or if there are borrowing constraints, then the optimal policy involves a mix of pricing and pre-entry selection on the basis of test scores. Optimal tuition can then be set below marginal cost, and can even become negative, if the precision of the university's private assessment of students' abilities is high enough

La querelle des redoublements : l'apport de l'économétrie

Il existe une économie politique du redoublement dont il faut essayer de mettre à jour quelques ressorts : le redoublement est une modalité particulière de la gestion du système éducatif qui présente des coûts et des bénéfices et dont l’efficacité est mise en question depuis de nombreuses années. Si la question du redoublement est aussi difficile à trancher, c’est d’une part qu’elle pose un véritable problème méthodologique et d’autre part que ses implications dépassent et de loin le strict cadre scolaire pour déborder sur le marché du travail