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Directed Search in the Housing Market

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Author Info

  • Albrecht, James

    ()
    (Georgetown University)

  • Gautier, Pieter

    ()
    (VU University Amsterdam)

  • Vroman, Susan

    ()
    (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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4671.

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Length: 45 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4671

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Keywords: directed search; housing;

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References

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  1. 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.
  2. Merlo, Antonio & Ortalo-Magne, Francois, 2004. "Bargaining over residential real estate: evidence from England," Journal of Urban Economics, Elsevier, vol. 56(2), pages 192-216, September.
  3. Albrecht, James & Gautier, Pieter & Vroman, Susan, 2003. "Equilibrium Directed Search with Multiple Applications," IZA Discussion Papers 719, Institute for the Study of Labor (IZA).
  4. L. Rachel Ngai & Silvana Tenreyro, 2009. "Hot and cold seasons in the housing market," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 25497, London School of Economics and Political Science, LSE Library.
  5. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  6. 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.
  7. Yongmin Chen & Robert W. Rosenthal, 1993. "Asking Prices as Commitment Devices," Papers, Boston University - Industry Studies Programme 0042, Boston University - Industry Studies Programme.
  8. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
  9. 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.
  10. 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.
  11. 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.
  12. Robert Shimer & Randall Wright & Veronica Guerrieri, 2009. "Adverse Selection in Competitive Search Equilibrium," 2009 Meeting Papers, Society for Economic Dynamics 139, Society for Economic Dynamics.
  13. 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.
  14. 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.
  15. 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.
  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. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 87(3), pages 355-74, August.
  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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Cited by:
  1. Benjamin Lester (Federal Reserve Bank of Philadelphia), Ludo Visschers (The University of Edinburgh & Universidad Carlos III, Madrid), Ronald Wolthoff (University of Toronto), 2014. "Meeting Technologies and Optimal Trading Mechanisms in Competitive Search Markets," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 242, Edinburgh School of Economics, University of Edinburgh.
  2. de Wit, Erik R. & van der Klaauw, Bas, 2013. "Asymmetric information and list-price reductions in the housing market," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 43(3), pages 507-520.
  3. 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, Economics and Econometrics Research Institute (EERI), Brussels, vol. 56(2), pages 78-92.
  4. 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.
  5. Morris A. Davis & Stijn Van Nieuwerburgh, 2014. "Housing, Finance and the Macroeconomy," NBER Working Papers 20287, National Bureau of Economic Research, Inc.
  6. 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.

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