Repairs under imperfect information
AbstractWe 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 InfoArticle provided by Elsevier in its journal Journal of Urban Economics.
Volume (Year): 73 (2013)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/622905
House prices; Imperfect information; Repairs;
Find related papers by JEL classification:
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, November.
- 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.
- 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.
- 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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