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The power of mandatory quality disclosure: Evidence from the German housing market

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  • Frondel, Manuel
  • Gerster, Andreas
  • Vance, Colin

Abstract

Many countries have introduced Energy Performance Certificates to mitigate the information asymmetry with respect to the thermal quality of houses. Drawing on a stylized theoretical model that is coupled with comprehensive data on real estate advertisements in the German housing market, this paper investigates the causal effect of disclosing energy information on the offer prices of houses. We are particularly interested in testing whether house sellers who would not voluntarily disclose the house's energy consumption decrease the offer price upon a shift to a mandatory disclosure scheme. Employing both within-variation from panel data and an instrumental-variable approach to cope with the endogeneity of disclosure decisions, our analysis demonstrates the power of mandatory disclosure rules to increase market transparency and to reduce prices.

Suggested Citation

  • Frondel, Manuel & Gerster, Andreas & Vance, Colin, 2017. "The power of mandatory quality disclosure: Evidence from the German housing market," Ruhr Economic Papers 684, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:684
    DOI: 10.4419/86788794
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    References listed on IDEAS

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    Cited by:

    1. Taruttis, Lisa & Weber, Christoph, 2022. "Estimating the impact of energy efficiency on housing prices in Germany: Does regional disparity matter?," Energy Economics, Elsevier, vol. 105(C).
    2. Mark A. Andor & David H. Bernstein & Stephan Sommer, 2021. "Determining the efficiency of residential electricity consumption," Empirical Economics, Springer, vol. 60(6), pages 2897-2923, June.
    3. Huse, Cristian & Lucinda, Claudio & Cardoso, Andre Ribeiro, 2020. "Consumer response to energy label policies: Evidence from the Brazilian energy label program," Energy Policy, Elsevier, vol. 138(C).
    4. Louis-Gaëtan Giraudet, 2018. "Energy efficiency as a credence good: A review of informational barriers to building energy savings," Policy Papers 2018.04, FAERE - French Association of Environmental and Resource Economists.
    5. Myers, Erica & Puller, Steven & West, Jeremy, 2019. "Effects of Mandatory Energy Efficiency Disclosure in Housing Markets," Santa Cruz Department of Economics, Working Paper Series qt26f4n98g, Department of Economics, UC Santa Cruz.
    6. Lisa Taruttis & Christoph Weber, 2020. "Estimating the impact of energy efficiency on housing prices in Germany: Does regional disparity matter?," EWL Working Papers 2004, University of Duisburg-Essen, Chair for Management Science and Energy Economics.
    7. Fanghella, Valeria & Guetlein, Marie-Charlotte & Schleich, Joachim & Sebi, Carine, 2023. "Preferences on financing mechanisms for thermal retrofit measures in multi-owner buildings: A discrete choice experiment with landlords and owner-occupiers in France," Resource and Energy Economics, Elsevier, vol. 74(C).
    8. Breidenbach Philipp & Eilers Lea, 2018. "RWI-GEO-GRID: Socio-economic data on grid level," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 238(6), pages 609-616, October.
    9. Frondel, Manuel & Kaestner, Kathrin & Sommer, Stephan & Vance, Colin, 2021. "Photovoltaics and the Solar Rebound: Evidence for Germany," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242356, Verein für Socialpolitik / German Economic Association.
    10. Luisa Dressler & Elisabetta Cornago, 2017. "The Rent Impact of Disclosing Energy Performance Certificates: Energy Efficiency and Information Effects," Working Papers ECARES ECARES 2017-16, ULB -- Universite Libre de Bruxelles.
    11. Ter Steege, Lucas & Vogel, Edgar, 2021. "German residential real estate valuation under NGFS climate scenarios," Technical Papers 09/2021, Deutsche Bundesbank.
    12. Tom Lane & Minghai Zhou, 2022. "Failure of unravelling theory? A natural field experiment on voluntary quality disclosure," Discussion Papers 2022-17, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    13. Bian, Xueying & Fabra, Natalia, 2020. "Incentives for information provision: Energy efficiency in the Spanish rental market," Energy Economics, Elsevier, vol. 90(C).
    14. Benndorf, Volker & Kübler, Dorothea & Normann, Hans-Theo, 2022. "Behavioral forces driving information unraveling," Discussion Papers, Research Unit: Market Behavior SP II 2022-206, WZB Berlin Social Science Center.
    15. Taruttis, Lisa & Weber, Christoph, 2020. "Estimating the impact of energy efficiency on housing prices in Germany: Does regional disparity matter?," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224582, Verein für Socialpolitik / German Economic Association.
    16. Singhal, Puja & Pahle, Michael & Kalkuhl, Matthias & Levesque, Antoine & Sommer, Stephan & Berneiser, Jessica, 2022. "Beyond good faith: Why evidence-based policy is necessary to decarbonize buildings cost-effectively in Germany," Energy Policy, Elsevier, vol. 169(C).
    17. Giraudet, Louis-Gaëtan, 2020. "Energy efficiency as a credence good: A review of informational barriers to energy savings in the building sector," Energy Economics, Elsevier, vol. 87(C).
    18. Benndorf, Volker & Kübler, Dorothea & Normann, Hans-Theo, 2023. "Behavioral forces driving information unraveling," Discussion Papers, Research Unit: Market Behavior SP II 2023-207, WZB Berlin Social Science Center.
    19. Frondel, Manuel & Kaestner, Kathrin & Sommer, Stephan & Vance, Colin, 2022. "Photovoltaics and the solar rebound: Evidence for Germany," Ruhr Economic Papers 954, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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    More about this item

    Keywords

    information asymmetry; mandatory disclosure; environmental certification;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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