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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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  1. François Ortalo-Magné & Antonio Merlo, 2002. "Bargaining over Residential Real Estate: Evidence from England," Wisconsin-Madison CULER working papers 02-02, University of Wisconsin Center for Urban Land Economic Research.
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  3. 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, vol. 54, pages 837-872, 08.
  4. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
  5. Derek G. Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," Working Papers 1289, Queen's University, Department of Economics.
  6. Rutherford, R.C. & Springer, T.M. & Yavas, A., 2005. "Conflicts between principals and agents: evidence from residential brokerage," Journal of Financial Economics, Elsevier, vol. 76(3), pages 627-665, June.
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Cited by:
  1. Derek G. Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," Working Papers 1289, Queen's University, Department of Economics.
  2. Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2013. "Competing with asking prices," Working Papers 13-07, Federal Reserve Bank of Philadelphia.

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