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

27 Pages Posted: 20 Jan 2017

Date Written: Spring 2017

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. We also find that people's conscious “experimentally stated preference” moral stance on installment loan (mortgages, auto loans, credit card debt and even cell phone contracts) default significantly differs from their subconscious “experimentally revealed preference” moral stance indicating a difference between what people say they believe and what they actually believe.

Suggested Citation

Seiler, Michael, Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality? A Test of the Disjunctive Thesis (Spring 2017). Real Estate Economics, Vol. 45, Issue 1, pp. 204-230, 2017, Available at SSRN: https://ssrn.com/abstract=2902384 or http://dx.doi.org/10.1111/1540-6229.12142

Michael Seiler (Contact Author)

College of William and Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

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