Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions
Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real-estate agents, who know much more about the housing market than the typical homeowner, are one example. Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly. We test these predictions by comparing home sales in which real estate agents are hired by others to sell a home to instances in which a real estate agent sells his or her own home. In the former case, the agent has distorted incentives; in the latter case, the agent wants to pursue the first-best. Consistent with the theory, we find homes owned by real estate agents sell for about 3.7 percent more than other houses and stay on the market about 9.5 days longer, even after controlling for a wide range of housing characteristics. Situations in which the agent's informational advantage is larger lead to even greater distortions.
|Date of creation:||Jan 2005|
|Publication status:||published as 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, 08.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
- Sanford Grossman & Oliver Hart, "undated".
"An Analysis of the Principal-Agent Problem,"
Rodney L. White Center for Financial Research Working Papers
15-80, Wharton School Rodney L. White Center for Financial Research.
- 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.
- V. Crawford & J. Sobel, 2010.
"Strategic Information Transmission,"
Levine's Working Paper Archive
544, David K. Levine.
- Jonathan Gruber & Maria Owings, 1996.
"Physician Financial Incentives and Cesarean Section Delivery,"
RAND Journal of Economics,
The RAND Corporation, vol. 27(1), pages 99-123, Spring.
- Jonathan Gruber & Maria Owings, 1994. "Physician Financial Incentives and Cesarean Section Delivery," NBER Working Papers 4933, National Bureau of Economic Research, Inc.
- 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.
- David Genesove & Christopher J. Mayer, 1994. "Equity and Time to Sale in the Real Estate Market," NBER Working Papers 4861, National Bureau of Economic Research, Inc.
- David Genesove & Christopher J. Mayer, 1993. "Equity and time to sale in the real estate market," Working Papers 93-6, Federal Reserve Bank of Boston.
- Genesove, D. & Mayer, C.J., 1994. "Equity and Time to Sale in the Real Estate Market," Working papers 94-02, Massachusetts Institute of Technology (MIT), Department of Economics.
- Chang-Tai Hsieh & Enrico Moretti, 2003.
"Can Free Entry Be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry,"
Journal of Political Economy,
University of Chicago Press, vol. 111(5), pages 1076-1122, October.
- Chang-Tai Hsieh & Enrico Moretti, 2002. "Can Free Entry be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry," NBER Working Papers 9208, National Bureau of Economic Research, Inc.
- Timothy E. Jares & James E. Larsen & Thomas S. Zorn, 2000. "An Optimal Incentive System For Real Estate Agents," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 49-59.
- Thomas N. Hubbard, 1998. "An Empirical Examination of Moral Hazard in the Vehicle Inspection Market," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 406-426, Summer.
- Hubbard, Thomas N, 2002. "How Do Consumers Motivate Experts? Reputational Incentives in an Auto Repair Market," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 437-468, October.
- Shaban, Radwan Ali, 1987. "Testing between Competing Models of Sharecropping," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 893-920, October.
- François Ortalo-Magné & Antonio Merlo, 2002.
"Bargaining over Residential Real Estate: Evidence from England,"
Wisconsin-Madison CULER working papers
02-02, University of Wisconsin Center for Urban Land Economic Research.
- 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.
- Antonio M. Merlo & François Ortalo-Magné, 2002. "Bargaining over Residential Real Estate: Evidence from England," CESifo Working Paper Series 778, CESifo Group Munich.
- Karl E. Case & Robert J. Shiller, 1990.
"Forecasting Prices and Excess Returns in the Housing Market,"
NBER Working Papers
3368, National Bureau of Economic Research, Inc.
- Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273.
- Gilat Levy, 2000.
"Strategic Consultation in the Presence of Career Concerns,"
STICERD - Theoretical Economics Paper Series
404, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Gilat Levy, 2000. "Strategic consultation in the presence of career concerns," LSE Research Online Documents on Economics 3627, London School of Economics and Political Science, LSE Library.
- Vijay Krishna & John Morgan, 1999.
"A Model of Expertise,"
Game Theory and Information
- Krishna, V. & Morgan, J., 1999. "A Model of Expertise," Papers 206, Princeton, Woodrow Wilson School - Public and International Affairs.
- Vijay Krishna & John Morgan, 1999. "A Model of Expertise," Working Papers 154, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
- Munneke, Henry J & Yavas, Abdullah, 2001. "Incentives and Performance in Real Estate Brokerage," The Journal of Real Estate Finance and Economics, Springer, vol. 22(1), pages 5-21, January.
- David E. M. Sappington, 1991. "Incentives in Principal-Agent Relationships," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 45-66, Spring.
- Kennan, J. & Wilson, R., 1991.
"Bargaining with Private Information,"
90-01rev, University of Iowa, Department of Economics.
- Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
- Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:11053. 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: ()
If references are entirely missing, you can add them using this form.