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Contigent Price Contracts and the Efficiency of Housing Markets

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  • Stephen Day Cauley

Abstract

Frequently, the response of housing markets to a large negative demand shock is a period during which the liquidity of housing declines, but the price at which transactions take place changes little. In this paper we show that a decline in liquidity can result from the inabilities of sellers and buyers to insure against post‐shock price uncertainty. We conclude, that the introduction of a risk‐sharing contingent price contract may increase the post‐shock liquidity of housing by providing insurance against post‐shock price uncertainty. Finally, we show that a mutually agreeable contingent price contract will always exist, even when sellers are excessively optimistic.

Suggested Citation

  • Stephen Day Cauley, 1994. "Contigent Price Contracts and the Efficiency of Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(4), pages 583-602, December.
    • Handle: RePEc:bla:reesec:v:22:y:1994:i:4:p:583-602
    DOI: 10.1111/1540-6229.00650
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    References listed on IDEAS

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    1. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-1150, September.
    2. Mervyn A. King & Jonathan I. Leape, 1984. "Wealth and Portfolio Composition: Theory and Evidence," NBER Working Papers 1468, National Bureau of Economic Research, Inc.
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