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Testing for Asymmetric Information in the Viager Market

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  • Philippe FEVRIER

    (Crest)

  • Laurent LINNEMER

    (Crest)

  • Michael VISSER

    (Crest)

Abstract

A viager real estate transaction consists in selling a property in return for a down paymentand a rent (life annuity) that the buyer has to pay until the seller dies. This paper testsfor the presence of asymmetric information in this market. Thanks to a no arbitrage condition(buyers must be indifferent between purchasing on the standard and viager market), weidentify the type of the seller as a sum of weighted death probabilities. By comparing thesesums with analogously defined national-level sums we can check whether viager sellers havethe same survival distribution as individuals in the population. We then develop a modelfor a viager sale and derive testable predictions under symmetric and asymmetric information.Our test for asymmetric information consists in regressing the contract parameters(down payment and rent) on the inferred type of the seller, and comparing the estimateswith the predicted outcomes. Notarial data are used on transactions in Paris between 1992and 2001. We find that sellers do not have the same survival distributions as comparablepersons in the population, and hence they have information about their death probabilities.The hypothesis that information is symmetrically distributed between buyers and sellers isaccepted. This highlights that the information about the seller’s survival prospects is nolonger private when the contract is signed.

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2010-01.

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Date of creation: 2010
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Handle: RePEc:crs:wpaper:2010-01

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