American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
The Contagion Effect of Neighboring Foreclosures
American Economic Journal: Economic Policy
vol. 5,
no. 2, May 2013
(pp. 313–35)
Abstract
We examine the contagion effect of residential foreclosures and find strong evidence of a social interactions influence on default decisions where the interaction is based on neighbors' behavior in a previous period. Using a unique spatially explicit parcel-level dataset documenting residential foreclosures in Maryland for the years 2006–2009 and a highly localized neighborhood definition, based on 13 nearest neighbors, we find that a neighbor in foreclosure increases the hazard of additional defaults by 18 percent. This feedback effect goes beyond a temporary reduction in local house prices and implies a negative social multiplier effect of foreclosures. (JEL R23, R31)Citation
Towe, Charles, and Chad Lawley. 2013. "The Contagion Effect of Neighboring Foreclosures." American Economic Journal: Economic Policy, 5 (2): 313–35. DOI: 10.1257/pol.5.2.313Additional Materials
JEL Classification
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
- R31 Housing Supply and Markets
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