Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality?: A Test of the Disjunctive Thesis

30 Pages Posted: 12 Jul 2014

See all articles by Michael Seiler

Michael Seiler

College of William and Mary - Finance

Date Written: July 7, 2014

Abstract

We test the disjunctive thesis as it relates to mortgage contracts and find that a liquidated damages clause shifts ones view of a mortgage from a promise to perform to either a promise to perform or pay compensatory damages. However, when a strategic mortgage default is responsible for the breach, the perceived immorality of this action overwhelms the liquidated damages clause effect in support of the disjunctive thesis. When comparing mortgages to other types of installment loans, people’s “stated preference” is that breaching a mortgage is more immoral, but their “revealed preference” measure indicates that breaching a mortgage is morally on par with breaching an auto loan, credit card debt, and even a phone contract.

Keywords: strategic mortgage default, disjunctive thesis, liquidated damages, morality, legal contracts

JEL Classification: D10; D81; K11; R20

Suggested Citation

Seiler, Michael, Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality?: A Test of the Disjunctive Thesis (July 7, 2014). Available at SSRN: https://ssrn.com/abstract=2465094 or http://dx.doi.org/10.2139/ssrn.2465094

Michael Seiler (Contact Author)

College of William and Mary - Finance ( email )

VA
United States

HOME PAGE: http://mason.wm.edu/faculty/directory/seiler_m.php

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