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The Disciplining Effect of Concern for Referrals for Better Informed Agents: Evidence from Real Estate Transactions

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  • Lan Shi
  • Christina Tapia

Abstract

Using the future residence of home sellers, we compare a seller who will relocate to another state and thus will likely not provide referrals with a seller who remains in the state and thus might bring referrals. We find that moving-out-of-state sellers' residences take more days to sell than staying-in-state sellers yet without any price benefits. Moreover, among moving-out-of-state sellers, an uninformed moving-out-of-state seller's residence stays on the market for fewer days and is sold at a lower price than an informed moving-out-of-state seller. We also find that a senior seller's house sells faster and for less. We interpret these findings together as supporting that i) a concern for referrals provides discipline to both shirking and manipulation of information by agents and ii) it is important that the client be informed in protecting her own interests in one-shot transactions.

Suggested Citation

  • Lan Shi & Christina Tapia, 2009. "The Disciplining Effect of Concern for Referrals for Better Informed Agents: Evidence from Real Estate Transactions," Working Papers UWEC-2009-06, University of Washington, Department of Economics.
  • Handle: RePEc:udb:wpaper:uwec-2009-06
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    1. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    2. Jeffrey C. Ely & Juuso Välimäki, 2003. "Bad Reputation," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 785-814.
    3. 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, November.
    4. 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.
    5. Bar-Isaac, Heski & Tadelis, Steven, 2008. "Seller Reputation," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(4), pages 273-351, August.
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