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Directed Search in the Housing Market

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  • James Albrecht

    (Georgetown University)

  • Pieter A. Gautier

    (VU University Amsterdam)

  • Susan Vroman

    (Georgetown University)

Abstract

In this paper, we present a directed search model of the housing market. The pricing mechanism we analyze reflects the way houses are bought and sold in the United States. Our model is consistent with the observation that houses are sometimes sold above, sometimes below and sometimes at the asking price. We consider two versions of our model. In the first version, all sellers have the same reservation value. In the second version, there are two seller types, and type is private information. For both versions, we characterize the equilibrium of the game played by buyers and sellers, and we prove efficiency. Our model offers a new way to look at the housing market from a search-theoretic perspective. In addition, we contribute to the directed search literature by considering a model in which the asking price (i) entails only limited commitment and (ii) has the potential to signal seller type.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-005/3.

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Date of creation: 04 Jan 2010
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Handle: RePEc:dgr:uvatin:20100005

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Keywords: Directed Search; Housing;

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References

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  1. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2005. "Signaling in a Global Game: Coordination and Policy Traps," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1400, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  3. L.Rachel Ngai & Silvana Tenreyro, 2008. "Hot and cold seasons in the housing markets," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 4994, London School of Economics and Political Science, LSE Library.
  4. François Ortalo-Magné & Antonio Merlo, 2002. "Bargaining over Residential Real Estate: Evidence from England," Wisconsin-Madison CULER working papers, University of Wisconsin Center for Urban Land Economic Research 02-02, University of Wisconsin Center for Urban Land Economic Research.
  5. Paul E. Carrillo, 2012. "An Empirical Stationary Equilibrium Search Model Of The Housing Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 203-234, 02.
  6. Albrecht, James & Gautier, Pieter & Vroman, Susan, 2003. "Equilibrium Directed Search with Multiple Applications," IZA Discussion Papers 719, Institute for the Study of Labor (IZA).
  7. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
  8. Alain Delacroix & Shouyong Shi, 2007. "Pricing and Signaling with Frictions," Working Papers, University of Toronto, Department of Economics tecipa-298, University of Toronto, Department of Economics.
  9. Guido Menzio, 2007. "A Theory of Partially Directed Search," PIER Working Paper Archive 09-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  10. Veronica Guerrieri & Robert Shimer & Randall Wright, 2009. "Adverse Selection in Competitive Search Equilibrium," NBER Working Papers 14915, National Bureau of Economic Research, Inc.
  11. James Albrecht & Axel Anderson & Eric Smith & Susan Vroman, 2007. "Opportunistic Matching In The Housing Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 641-664, 05.
  12. Antonia Díaz & Belén Jerez, 2013. "House Prices, Sales, And Time On The Market: A Search‐Theoretic Framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 837-872, 08.
  13. Chen, Y. & Rosenthal, R.W., 1993. "Asking Prices as Commitment Devices," Papers, Boston University - Industry Studies Programme 42, Boston University - Industry Studies Programme.
  14. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 87(3), pages 355-74, August.
  15. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
  16. Gabriele Camera & Cemil Selcuk, 2009. "Price Dispersion with Directed Search," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(6), pages 1193-1224, December.
  17. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 385-411, April.
  18. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(6), pages 1270-92, December.
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Citations

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Cited by:
  1. Gaetano Lisi, 2014. "Home-seekers in the Housing Market," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 17(1), pages 47-62.
  2. Ronald Wolthoff & Ludo Visschers & Benjamin Lester, 2014. "Meeting Technologies and Optimal Trading Mechanisms in Competitive Search Marks," 2014 Meeting Papers, Society for Economic Dynamics 188, Society for Economic Dynamics.
  3. James Albrecht, Pieter Gautier, Susan Vroman, 2013. "Efficient Entry in Competing Auctions," Working Papers, Georgetown University, Department of Economics gueconwpa~13-13-05, Georgetown University, Department of Economics.
  4. de Wit, Erik & van der Klaauw, Bas, 2010. "Asymmetric Information and List Price Reductions in the Housing Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7799, C.E.P.R. Discussion Papers.
  5. Morris A. Davis & Stijn Van Nieuwerburgh, 2014. "Housing, Finance and the Macroeconomy," NBER Working Papers 20287, National Bureau of Economic Research, Inc.
  6. Lisi, Gaetano, 2012. "Can the Mortensen-Pissarides model match the housing market facts?," MPRA Paper 36769, University Library of Munich, Germany.

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