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Let the Buyer or Seller Beware: Measuring Lemons in the Housing Market under Different Doctrines of Law Governing Transactions and Information

  • K. W. Chau
  • Lennon H. T. Choy
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    Under information asymmetry, lemons tend to be overpriced. Yet how much of an overpricing premium the lemons can command is contingent on the underlying legal institutions. A set of transaction data from Hong Kong’s housing market reveals that durable lemons are overpriced by 6.7 and 9.9 percent under the rules of “let the seller beware” (caveat venditor) and “let the buyer beware” (caveat emptor), respectively. Switching the legal regime from the former to the latter produces a 32.3 percent increase in the overpricing premium. However, this does not suggest that caveat venditor is necessarily a more efficient legal doctrine. New information disclosure institutions are emerging to deal with the lemons problem.

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    File URL: http://www.jstor.org/stable/pdfplus/10.1086/661941
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    File URL: http://www.jstor.org/stable/full/10.1086/661941
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    Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

    Volume (Year): 54 (2011)
    Issue (Month): S4 ()
    Pages: S347 - S365

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    Handle: RePEc:ucp:jlawec:doi:10.1086/661941
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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