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Information, Commitment, and Separation in Illiquid Housing Markets

Listed author(s):
  • Derek 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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File URL: https://economicdynamics.org/meetpapers/2012/paper_401.pdf
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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 401.

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Date of creation: 2012
Handle: RePEc:red:sed012:401
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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