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Repairs under imperfect information

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  • Lee, Sanghoon
  • Ries, John
  • Somerville, C. Tsuriel

Abstract

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.

Suggested Citation

  • Lee, Sanghoon & Ries, John & Somerville, C. Tsuriel, 2013. "Repairs under imperfect information," Journal of Urban Economics, Elsevier, vol. 73(1), pages 43-56.
    • Handle: RePEc:eee:juecon:v:73:y:2013:i:1:p:43-56
    DOI: 10.1016/j.jue.2012.07.003
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    References listed on IDEAS

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    1. Ronald Rutherford & Thomas Springer & Abdullah Yavas, 2007. "Evidence of Information Asymmetries in the Market for Residential Condominiums," The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 23-38, July.
    2. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    3. Mark J. Garmaise, 2004. "Confronting Information Asymmetries: Evidence from Real Estate Markets," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 405-437.
    4. Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, November.
    5. Anupam Nanda & Stephen Ross, 2012. "The Impact of Property Condition Disclosure Laws on Housing Prices: Evidence from an Event Study Using Propensity Scores," The Journal of Real Estate Finance and Economics, Springer, vol. 45(1), pages 88-109, June.
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    Cited by:

    1. Rosenthal, Stuart S. & Ross, Stephen L., 2015. "Change and Persistence in the Economic Status of Neighborhoods and Cities," 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 1047-1120, Elsevier.
    2. Nicholas B. Irwin & Mitchell R. Livy, 2022. "Price and Liquidity Dynamics for Single and Multi-Family Homes during Housing Market Shocks," The Journal of Real Estate Finance and Economics, Springer, vol. 65(1), pages 22-47, July.
    3. Munneke, Henry J. & Womack, Kiplan S., 2015. "Neighborhood renewal: The decision to renovate or tear down," Regional Science and Urban Economics, Elsevier, vol. 54(C), pages 99-115.

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    More about this item

    Keywords

    House prices; Imperfect information; Repairs;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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