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Information, Commitment, and Separation in Illiquid Housing Markets

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  • Derek G. Stacey

    ()
    (Queen's University)

Abstract

I propose a model of the housing market using a search framework with asymmetric information in which sellers are unable to commit to asking prices announced ex ante. Relaxing the commitment assumption prevents sellers from using price posting as a signalling device to direct buyers' search. Adverse selection and inefficient entry on the demand side then contribute to housing market illiquidity. Real estate agents that can improve the expected quality of a match can segment the market and alleviate information frictions. Even if one endorses the view that real estate agents provide no technological advantage in the matching process, incentive compatible listing contracts are implementable as long as housing is not already sufficiently liquid. The theoretical implications are qualitatively consistent with the empirical observations of real estate brokerage: platform differentiation, endogenous sorting, and listing contract features that reinforce incentive compatibility.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1289.pdf
File Function: First version 2012
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1289.

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Length: 54 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:qed:wpaper:1289

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Keywords: Housing; Search; Liquidity; Real Estate Agents;

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References

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  8. Derek G. Stacey, 2013. "Information, Commitment, and Separation in Illiquid Housing Markets," Working Papers 039, Ryerson University, Department of Economics.
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Citations

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Cited by:
  1. Derek Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," 2012 Meeting Papers 401, Society for Economic Dynamics.
  2. Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2014. "Competing with Asking Prices," Economics Working Papers we1411, Universidad Carlos III, Departamento de Economía.
  3. Ronald Wolthoff & Lodewijk Visschers & Benjamin Lester, 2012. "Asking Prices and Inspection Goods," 2012 Meeting Papers 792, Society for Economic Dynamics.

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