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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. 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, vol. 48(2), pages 641-664, 05.
  2. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  3. Guido Menzio, 2007. "A Theory of Partially Directed Search," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 748-769, October.
  4. James Albrecht & Pieter Gautier & Susan Vroman, 2003. "Equilibrium Directed Search with Multiple Applications," Tinbergen Institute Discussion Papers 03-004/3, Tinbergen Institute, revised 14 Feb 2004.
  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, vol. 53(1), pages 203-234, 02.
  6. Robert Shimer & Randall Wright & Veronica Guerrieri, 2009. "Adverse Selection in Competitive Search Equilibrium," 2009 Meeting Papers 139, Society for Economic Dynamics.
  7. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2005. "Signaling in a Global Game: Coordination and Policy Traps," Discussion Papers 1400, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  9. Gabriele Camera & Cemil Selcuk, 2009. "Price Dispersion with Directed Search," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1193-1224, December.
  10. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
  11. Chen, Yongmin & Rosenthal, Robert W, 1996. "Asking Prices as Commitment Devices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 129-55, February.
  12. L.Rachel Ngai & Silvana Tenreyro, 2008. "Hot and cold seasons in the housing markets," LSE Research Online Documents on Economics 4994, London School of Economics and Political Science, LSE Library.
  13. Alain Delacroix & Shouyong Shi, 2012. "Pricing and Signaling with Frictions," Working Papers tecipa-455, University of Toronto, Department of Economics.
  14. Antonio M. Merlo & François Ortalo-Magné, 2002. "Bargaining over Residential Real Estate: Evidence from England," CESifo Working Paper Series 778, CESifo Group Munich.
  15. Belen Jerez & Antonia Diaz, 2009. "House Prices, Sales and Time on the Market: A Search-Theoretic Framework," 2009 Meeting Papers 1006, Society for Economic Dynamics.
  16. 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.
  17. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-92, December.
  18. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
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Cited by:
  1. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2014. "Meeting technologies and optimal trading mechanisms in competitive search markets," Working Papers 14-15, Federal Reserve Bank of Philadelphia.
  2. de Wit, Erik & van der Klaauw, Bas, 2010. "Asymmetric Information and List Price Reductions in the Housing Market," CEPR Discussion Papers 7799, C.E.P.R. Discussion Papers.
  3. Lisi, Gaetano, 2012. "Home seekers in the housing market," MPRA Paper 37065, University Library of Munich, Germany.
  4. Gaetano Lisi, 2013. "Can the Mortensen-Pissarides Model Match the Housing Market Facts?," Journal of Economics and Econometrics, Economics and Econometrics Research Institute (EERI), Brussels, vol. 56(2), pages 78-92.
  5. James Albrecht, Pieter Gautier, Susan Vroman, 2013. "Efficient Entry in Competing Auctions," Working Papers gueconwpa~13-13-05, Georgetown University, Department of Economics.

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