Repairs under imperfect information
We propose a theory of how repairs affect prices under imperfect information. Our model reveals that repairs may lower prices because, if repairs are not always successful, they may reveal negative information about product quality. We also show that the price effect of repairs is increasing in the share of defective products in the population. Under perfect information a repair cannot lower the price and the price effect does not depend on the defective unit share. Data on condominium transactions during Vancouver’s leaky condominium crisis provide support for the model predictions.
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- Steven D. Levitt & Chad Syverson, 2008.
"Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions,"
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- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
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- Anupam Nanda & Stephen Ross, 2012.
"The Impact of Property Condition Disclosure Laws on Housing Prices: Evidence from an Event Study Using Propensity Scores,"
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- Anupam Nanda & Stephen L. Ross, 2008. "The Impact of Property Condition Disclosure Laws on Housing Prices: Evidence from an Event Study using Propensity Scores," Working papers 2008-39, University of Connecticut, Department of Economics.
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