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This paper aims to investigate the foreclosure discount for the German residential market in the years from 2008 to 2011.

The determinants of the foreclosure discount are estimated in a hedonic price model. The analysis is based on a unique data set compiled from three different data sources with 135,000 foreclosed properties.

The findings reveal that residential units in foreclosures are sold at a discount of 19 per cent compared to residential units with similar characteristics that are not in foreclosure. Second, a regional pattern can be observed, with discounts being negatively correlated to unemployment risk and liquidity. Third, the model with interaction terms shows that foreclosure discounts are linked to specific property characteristics. Fourth, these object-related risks are typically smaller than regional risks or locational risks.

Given the highly fragmented system of Gutachterausschüsse in Germany, who are responsible for collecting transaction data, we were not able to directly analyze transaction data, but only a proxy for this price information.

The results can be important for financial institutions that are trying to assess the risk of lending for a specific object in a specific location. So far, banks primarily try to assess the default risk of private lenders by analyzing the debtor’s financial position and the quality of the property. The analysis provides insights into which characteristics of a property might imply additional risk, and in which region these risks are biggest.

To the best of the authors’ knowledge, this is the first attempt to analyze the foreclosure discount for the German housing market.

In their authoritative literature review, Breen and Jonsson (2005) claim that ‘one of the most significant trends in the study of inequalities in educational attainment in the past decade has been the resurgence of rational-choice models focusing on educational decision making’. The starting point of the present contribution is that these models have largely ignored the explanatory relevance of social interactions. To remedy this shortcoming, this paper introduces a micro-founded formal model of the macro-level structure of educational inequality, which frames educational choices as the result of both subjective ability/benefit evaluations and peer-group pressures. As acknowledged by Durlauf (2002, 2006) and Akerlof (1997), however, while the social psychology and ethnographic literature provides abundant empirical evidence of the explanatory relevance of social interactions, statistical evidence on their causal effect is still flawed by identification and selection bias problems. To assess the relative explanatory contribution of the micro-level and network-based mechanisms hypothesised, the paper opts for agent-based computational simulations. In particular, the technique is used to deduce the macro-level consequences of each mechanism (sequentially introduced) and to test these consequences against French aggregate individual-level survey data. The paper's main result is that ability and subjective perceptions of education benefits, no matter how intensely differentiated across agent groups, are not sufficient on their own to generate the actual stratification of educational choices across educational backgrounds existing in France at the beginning of the twenty-first century. By computational counterfactual manipulations, the paper proves that network-based interdependencies among educational choices are instead necessary, and that they contribute, over and above the differentiation of ability and of benefit perceptions, to the genesis of educational stratification by amplifying the segregation of the educational choices that agents make on the basis of purely private ability/benefit calculations.