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Information, Commitment, and Separation in Illiquid Housing Markets

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  • Derek G. Stacey

    (Department of Economics, Ryerson University, Toronto, Canada)

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 facilitate the search process 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.

Suggested Citation

  • Derek G. Stacey, 2013. "Information, Commitment, and Separation in Illiquid Housing Markets," Working Papers 039, Ryerson University, Department of Economics.
    • Handle: RePEc:rye:wpaper:wp039
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    Citations

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    Cited by:

    1. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2014. "Competing with Asking Prices," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-37, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. James Albrecht & Pieter Gautier & Susan Vroman, 2016. "Directed Search in the Housing Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 218-231, January.
    3. Benjamin Lester & Guillaume Rocheteau & Pierre‐Olivier Weill, 2015. "Competing for Order Flow in OTC Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S2), pages 77-126, June.
    4. Darren K. Hayunga & R. Kelley Pace, 2017. "List Prices in the US Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 55(2), pages 155-184, August.
    5. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2015. "Dynamic Relational Contracts under Complete Information," SIRE Discussion Papers 2015-51, Scottish Institute for Research in Economics (SIRE).
    6. Gautier, Pieter & Siegmann, Arjen & van Vuuren, Aico, 2023. "Real-estate agent commission structure and sales performance," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 163-187.
    7. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2017. "Competing with asking prices," Theoretical Economics, Econometric Society, vol. 12(2), May.
    8. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 813-886, Elsevier.
    9. Ronald Wolthoff & Lodewijk Visschers & Benjamin Lester, 2012. "Asking Prices and Inspection Goods," 2012 Meeting Papers 792, Society for Economic Dynamics.
    10. Derek Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," 2012 Meeting Papers 401, Society for Economic Dynamics.
    11. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2015. "Dynamic Relational Contracts under Complete Information," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-51, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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    More about this item

    Keywords

    Housing; Search; Liquidity; Real Estate Agents;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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