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Matching models and housing markets: the role of the zero-profit condition

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  • Gaetano Lisi

Abstract

The recent and growing literature which has extended the use of search and matching models even to the housing market does not use the free entry or zero-profit assumption as a key condition for solving the equilibrium of the model. This is because a straightforward adaptation of the basic matching model to the housing market seems impossible. However, this paper shows that the zero-profit condition can be easily reformulated to take the distinctive features of the housing market into account. Indeed, it helps to provide a theoretical explanation for well-known empirical regularities in the housing markets.

Suggested Citation

  • Gaetano Lisi, 2012. "Matching models and housing markets: the role of the zero-profit condition," EERI Research Paper Series EERI_RP_2012_22, Economics and Econometrics Research Institute (EERI), Brussels.
  • Handle: RePEc:eei:rpaper:eeri_rp_2012_22
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    References listed on IDEAS

    as
    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
    2. Charles Leung & Youngman Leong & Siu Wong, 2006. "Housing Price Dispersion: An Empirical Investigation," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 357-385, May.
    3. Charles Ka Yui Leung & Jun Zhang, 2011. "¡§Fire Sales¡¨ in Housing Market: Is the House- Search Process Similar to a Theme Park Visit?," International Real Estate Review, Asian Real Estate Society, vol. 14(3), pages 311-329.
    4. Gaetano Lisi, 2011. "The Hedonic Price Function in a Matching Model of Housing Market," Economics Bulletin, AccessEcon, vol. 31(3), pages 2347-2355.
    5. 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.
    6. Gaetano Lisi, 2013. "On the Functional Form of the Hedonic Price Function: A Matching-theoretic Model and Empirical Evidence," International Real Estate Review, Asian Real Estate Society, vol. 16(2), pages 189-207.
    7. Robert Novy-Marx, 2009. "Hot and Cold Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(1), pages 1-22.
    8. Brian Petereson, 2009. "Fooled by Search: Housing Prices, Turnover and Bubbles," Caepr Working Papers 2009-004, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    trust (in) and power (of) tax authorities; tax compliance; tax evasion macroeconomics variables.;

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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