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Contigent Price Contracts and the Efficiency of Housing Markets

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  • Stephen Day Cauley
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    Abstract

    Frequently, the response of housing markets to a large negative demand shock is a period during which the liquidity of housing declines, but the price at which transactions take place changes little. In this paper we show that a decline in liquidity can result from the inabilities of sellers and buyers to insure against post-shock price uncertainty. We conclude, that the introduction of a risk-sharing contingent price contract may increase the post-shock liquidity of housing by providing insurance against post-shock price uncertainty. Finally, we show that a mutually agreeable contingent price contract will always exist, even when sellers are excessively optimistic. Copyright American Real Estate and Urban Economics Association.

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    Bibliographic Info

    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 22 (1994)
    Issue (Month): 4 ()
    Pages: 583-602

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    Handle: RePEc:bla:reesec:v:22:y:1994:i:4:p:583-602

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