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Listed below are the abstracts for all of the working papers for this year. To see a list of paper titles (with links to available PDF files) click here.

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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This paper presents a selective overview of the private residential finance sector. Our purpose is to examine how the private residential finance intermediaries direct the flow of funds from savers to the savers to the borrowers in the housing market, and to explore the effects of the current system and proposed changes in institutional arrangements upon the functioning of private housing finance. Our analysis is not exhaustive, but is intended to focus upon recent trends and policy issues that are thought to have potentially significant future impact on the adequacy of the housing finance system. The discussion is divided into six sections below. While out principal interest is in the private sector housing finance system, Section 1 will briefly discuss its interrelationship with the capital markets as a whole and with public sector residential finance institutions. Section 2 provides a background discussion of the current trends in housing and private housing finance, and is followed by an analysis of the efficiency of the private residential finance system (Section 3). The fourth section explores the consequences of the current system and the possible effects of several proposed policy modifications. In the fifth section, we present long-run projections for housing and associated financing. The last section summarizes our findings and suggests means for improving the allocation of financial resources to housing via the private sector.


The basic theoretical relationships between the value of the firm and leverage were set forth by Modigliani and Miller (MM). Much work has tested the MM relationships empirically, including studies which used data from regulated industries. Gordon has stated that, because earnings before interest and taxes are not held constant in regulated industries, the MM formula used in empirical work is invalid. However, Elton-Gruber (EG) challenge Gordon’s statement. The present paper shows that both the Gordon and the EG formulae hold only under special conditions. Under "normal" conditions of demand, both formulae underestimate the value of the levered firm. We show that there is no a priori method of estimating the effect of leverage on the value of a regulated firm without knowledge of specific supply and demand conditions. As researchers do not usually know these conditions, the results of papers testing the MM propositions with data on regulated industries are ambiguous. General formulae for the discount rate and the valuation of a levered firm in a regulated industry are presented.

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The conclusions of Hirshleifer (1971) concerning the private and social value of information in a pure exchange economy are examined. We agree that in the impersonal and competitive market of Hirshleifer, the production of new private information has private value and the production of new public information has no social value; however, the dissemination of existing private information has both positive private and social value. For the same reason, the production of private information, even if costless, can be socially harmful. We then examine a personal market, in which each consumer knows something of the economic characteristics of other consumers. In this context, even with arbitrary exchange arrangements, private information can be expected to be less valuable. It is not needed to identify Pareto-efficient allocations and may not even be needed to rank these allocations. Moreover, if either the endowed allocations is itself Pareto-efficient or exchange arrangements are competitive and average beliefs exist, then neither the production nor dissemination of private information has private or social value. In general, there is less incentive than one might expect to trade on private information. In impersonal markets, if the market for information can be efficiently organized, it is better to sell information than trade on it. And in personal markets, there may be no benefit to trading on information.

Rodney L. White Center for
Financial Research
Telephone: (215) 898-7616
Facsimile: (215) 573-8084
Email: rlwctr@finance.wharton.upenn.edu

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