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Repairs under imperfect information

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  • Lee, Sanghoon
  • Ries, John
  • Somerville, C. Tsuriel

Abstract

We propose a theory of how repairs affect prices under imperfect information. Our model reveals that repairs may lower prices because, if repairs are not always successful, they may reveal negative information about product quality. We also show that the price effect of repairs is increasing in the share of defective products in the population. Under perfect information a repair cannot lower the price and the price effect does not depend on the defective unit share. Data on condominium transactions during Vancouver’s leaky condominium crisis provide support for the model predictions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 73 (2013)
Issue (Month): 1 ()
Pages: 43-56

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Handle: RePEc:eee:juecon:v:73:y:2013:i:1:p:43-56

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: House prices; Imperfect information; Repairs;

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  1. Steven D. Levitt & Chad Syverson, 2005. "Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions," NBER Working Papers 11053, National Bureau of Economic Research, Inc.
  2. Ronald Rutherford & Thomas Springer & Abdullah Yavas, 2007. "Evidence of Information Asymmetries in the Market for Residential Condominiums," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 35(1), pages 23-38, July.
  3. Mark J. Garmaise, 2004. "Confronting Information Asymmetries: Evidence from Real Estate Markets," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 17(2), pages 405-437.
  4. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
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