IDEAS home Printed from https://ideas.repec.org/a/eee/regeco/v43y2013i3p507-520.html
   My bibliography  Save this article

Asymmetric information and list-price reductions in the housing market

Author

Listed:
  • de Wit, Erik R.
  • van der Klaauw, Bas

Abstract

In housing markets with asymmetric information list prices may signal unobserved properties of the house or the seller. Asymmetric information is the starting point for many models for the housing market. In this paper, we estimate the causal effect of list-price reductions on the time houses remain for sale on the market to test for the presence of asymmetric information. We use very rich and extensive administrative data from the Netherlands. Our empirical results show that list-price reductions significantly increase the selling rate of a house, but also the rate of withdrawal from the market increases.

Suggested Citation

  • de Wit, Erik R. & van der Klaauw, Bas, 2013. "Asymmetric information and list-price reductions in the housing market," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 507-520.
  • Handle: RePEc:eee:regeco:v:43:y:2013:i:3:p:507-520
    DOI: 10.1016/j.regsciurbeco.2013.03.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0166046213000240
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    2. Huang, Ju-Chin & Palmquist, Raymond B, 2001. "Environmental Conditions, Reservation Prices, and Time on the Market for Housing," The Journal of Real Estate Finance and Economics, Springer, vol. 22(2-3), pages 203-219, March-May.
    3. Genesove, David & Han, Lu, 2012. "Search and matching in the housing market," Journal of Urban Economics, Elsevier, vol. 72(1), pages 31-45.
    4. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, vol. 87(3), pages 255-269, June.
    5. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
    6. 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.
    7. Stephen G. Donald & David A. Green & Harry J. Paarsch, 2000. "Differences in Wage Distributions Between Canada and the United States: An Application of a Flexible Estimator of Distribution Functions in the Presence of Covariates," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 609-633.
    8. Donald R. Haurin & Jessica L. Haurin & Taylor Nadauld & Anthony Sanders, 2010. "List Prices, Sale Prices and Marketing Time: An Application to U.S. Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(4), pages 659-685, Winter.
    9. Anglin, Paul M & Rutherford, Ronald & Springer, Thomas M, 2003. "The Trade-Off Between the Selling Price of Residential Properties and Time-on-the-Market: The Impact of Price Setting," The Journal of Real Estate Finance and Economics, Springer, vol. 26(1), pages 95-111, January.
    10. Horowitz, Joel L, 1992. "The Role of the List Price in Housing Markets: Theory and an Econometric Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 115-129, April-Jun.
    11. Yongheng Deng & John M. Quigley & Robert Van Order, 2000. "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Econometrica, Econometric Society, vol. 68(2), pages 275-308, March.
    12. Yongheng Deng & Andrey D. Pavlov & Lihong Yang, 2005. "Spatial Heterogeneity in Mortgage Terminations by Refinance, Sale and Default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(4), pages 739-764, December.
    13. Curtis R. Taylor, 1999. "Time-on-the-Market as a Sign of Quality," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 555-578.
    14. Merlo, Antonio & Ortalo-Magne, Francois, 2004. "Bargaining over residential real estate: evidence from England," Journal of Urban Economics, Elsevier, vol. 56(2), pages 192-216, September.
    15. Caplin, Andrew & Leahy, John, 1996. "Trading Costs, Price, and Volume in Asset Markets," American Economic Review, American Economic Association, vol. 86(2), pages 192-196, May.
    16. Erik R. de Wit, 2009. "Competing Risks in a Time-on-the-Market Analysis," ERES eres2009_307, European Real Estate Society (ERES).
    17. Jaap H. Abbring & Gerard J. van den Berg, 2003. "The identifiability of the mixed proportional hazards competing risks model," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 65(3), pages 701-710.
    18. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-1292, December.
    19. Olsen, Edgar O, 1969. "A Competitive Theory of the Housing Market," American Economic Review, American Economic Association, vol. 59(4), pages 612-622, Part I Se.
    20. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    21. Donald Haurin, 1988. "The Duration of Marketing Time of Residential Housing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(4), pages 396-410.
    22. Sass, Tim R, 1988. "A Note on Optimal Price Cutting Behavior under Demand Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 336-339, May.
    23. Lazear, Edward P, 1986. "Retail Pricing and Clearance Sales," American Economic Review, American Economic Association, vol. 76(1), pages 14-32, March.
    24. Green, Jerry & Shoven, John B, 1986. "The Effects of Interest Rates on Mortgage Prepayments," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 41-59, February.
    25. repec:arz:wpaper:eres2009-307 is not listed on IDEAS
    26. Jaap H. Abbring & Gerard J. van den Berg, 2003. "The Nonparametric Identification of Treatment Effects in Duration Models," Econometrica, Econometric Society, vol. 71(5), pages 1491-1517, September.
    27. Coles, Melvyn G & Smith, Eric, 1998. "Marketplaces and Matching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 239-254, February.
    28. John R. Knight, 2002. "Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(2), pages 213-237.
    29. Zuehlke, Thomas W, 1987. "Duration Dependence in the Housing Market," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 701-704, November.
    30. Gwilym Pryce & Kenneth Gibb, 2006. "Submarket Dynamics of Time to Sale," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(3), pages 377-415, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. de Wit, Erik R. & Englund, Peter & Francke, Marc K., 2013. "Price and transaction volume in the Dutch housing market," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 220-241.
    3. Elliot Anenberg, 2012. "Information frictions and housing market dynamics," Finance and Economics Discussion Series 2012-48, Board of Governors of the Federal Reserve System (U.S.).
    4. Bian, Xun & Waller, Bennie D. & Turnbull, Geoffrey K. & Wentland, Scott A., 2015. "How many listings are too many? Agent inventory externalities and the residential housing market," Journal of Housing Economics, Elsevier, vol. 28(C), pages 130-143.
    5. repec:eee:regeco:v:69:y:2018:i:c:p:11-24 is not listed on IDEAS
    6. Eerola, Essi & Lyytikäinen, Teemu, 2015. "On the role of public price information in housing markets," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 74-84.
    7. Dennis B. Guignet & Adan L. Martinez-Cruz, 2016. "The Impacts of Underground Petroleum Releases on a Homeowner's Decision to Sell: A Difference-in-Differences Approach," NCEE Working Paper Series 201603, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jun 2016.
    8. Peyman Khezr & Flavio Menezes, 2015. "Auctions with an asking price," Discussion Papers Series 539, School of Economics, University of Queensland, Australia.
    9. Carolin Fritzsche & Lars Vandrei, 2018. "Causes of Vacancies in the Housing Market – A Literature Review," ifo Working Paper Series 258, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    More about this item

    Keywords

    Time on the market; Duration analysis; Transaction prices; Selectivity;

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:regeco:v:43:y:2013:i:3:p:507-520. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/regec .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.