Behavioral Attributes of Strategic Default: Evidence from the Foreclosure Moratorium in Greece
47 Pages Posted: 5 Apr 2017 Last revised: 11 Feb 2019
Date Written: December 18, 2018
We exploit the introduction of a foreclosure moratorium and a new personal bankruptcy process in Greece that protect primary residences, to identify strategic defaulters. The regulation created distinct optimal strategies for strategic and non-strategic defaulters, allowing us to distinguish strategic defaults through mortgagors’ revealed preference. We show that 28% of defaults are strategic, and document considerable heterogeneity in strategic delinquencies across mortgagors. Our findings indicate prior engagement in moral hazard in the form of tax evasion, the existence of adverse liquidity shocks, and the level of financial and legal sophistication significantly contribute to strategic behavior.
Keywords: Strategic default, Foreclosure moratorium, Mortgage default, Moral hazard, Tax Evasion
JEL Classification: G21, D10, K35
Suggested Citation: Suggested Citation