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Information, Commitment, and Separation in Illiquid Housing Markets

  • Derek G. Stacey


    (Queen's University)

I propose a model of the housing market using a search framework with asymmetric information in which sellers are unable to commit to asking prices announced ex ante. Relaxing the commitment assumption prevents sellers from using price posting as a signalling device to direct buyers' search. Adverse selection and inefficient entry on the demand side then contribute to housing market illiquidity. Real estate agents that can improve the expected quality of a match can segment the market and alleviate information frictions. Even if one endorses the view that real estate agents provide no technological advantage in the matching process, incentive compatible listing contracts are implementable as long as housing is not already sufficiently liquid. The theoretical implications are qualitatively consistent with the empirical observations of real estate brokerage: platform differentiation, endogenous sorting, and listing contract features that reinforce incentive compatibility.

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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1289.

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Length: 54 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:qed:wpaper:1289
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  1. Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
  2. Antonia Díaz & Belén Jerez, 2010. "House prices, sales, and time on the market : a search-theoretic framework," Economics Working Papers we1033, Universidad Carlos III, Departamento de Economía.
  3. 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.
  4. Igal Hendel & Aviv Nevo & François Ortalo-Magné, 2009. "The Relative Performance of Real Estate Marketing Platforms: MLS versus," American Economic Review, American Economic Association, vol. 99(5), pages 1878-98, December.
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  6. 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.
  7. Alain Delacroix & Shouyong Shi, 2012. "Pricing and Signaling with Frictions," Working Papers tecipa-455, University of Toronto, Department of Economics.
  8. repec:tpr:qjecon:v:90:y:1976:i:4:p:630-49 is not listed on IDEAS
  9. Derek Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," 2012 Meeting Papers 401, Society for Economic Dynamics.
  10. Hanming Fang, 2001. "Social Culture and Economic Performance," American Economic Review, American Economic Association, vol. 91(4), pages 924-937, September.
  11. Benoit Julien & John Kennes & Ian King, 2001. "Residual Wage Disparity and Coordination Unemployment," CAM Working Papers 2004-20, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics, revised Nov 2004.
  12. James Albrecht & Axel Anderson & Eric Smith & Susan Vroman, 2007. "Opportunistic Matching In The Housing Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 641-664, 05.
  13. Rutherford, R.C. & Springer, T.M. & Yavas, A., 2005. "Conflicts between principals and agents: evidence from residential brokerage," Journal of Financial Economics, Elsevier, vol. 76(3), pages 627-665, June.
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  18. Anglin, Paul M & Arnott, Richard, 1991. "Residential Real Estate Brokerage as a Principal-Agent Problem," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 99-125, June.
  19. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
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  21. Kyungmin Kim, 2012. "Endogenous market segmentation for lemons," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 562-576, 09.
  22. B. Douglas Bernheim & Jonathan Meer, 2007. "How Much do Real Estate Brokers Add? A Case Study," Discussion Papers 06-041, Stanford Institute for Economic Policy Research.
  23. Sanford J. Grossman & Motty Perry, 1986. "Sequential Bargaining Under Asymmetric Information," NBER Technical Working Papers 0056, National Bureau of Economic Research, Inc.
  24. Abdullah Yavaş, 1992. "A Simple Search and Bargaining Model of Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 533-548.
  25. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  26. Abdullah Yavas & Shiawee Yang, 1995. "The Strategic Role of Listing Price in Marketing Real Estate: Theory and Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(3), pages 347-368.
  27. 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.
  28. Michael A. Arnold, 1992. "The Principal-Agent Relationship in Real Estate Brokerage Services," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(1), pages 89-106.
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