IDEAS home Printed from https://ideas.repec.org/a/eee/chieco/v83y2024ics1043951x23001852.html
   My bibliography  Save this article

Search frictions in rental markets: Evidence from urban China

Author

Listed:
  • Fan, Ying
  • Fu, Yuqi
  • Yang, Zan
  • Chen, Ming

Abstract

In this paper, we study consumer search in a housing market subject to objective frictions induced by intermediaries and psychological frictions intrinsic to tenants themselves. Using rental data from a leading real estate brokerage company during 2016 and 2018, we find a unimodal distribution of objective search frictions and a bimodal distribution of psychological search frictions revealed by tenants' search behaviors. This bimodal distribution originates from divergent search strategies of tenants with different search criteria. Furthermore, psychological search frictions explain the deviation between a tenant's actual choice and stated preference, and enhance the degree of overpay/mark-up in the deal. These effects of psychological frictions led by divergent search strategies hold when we consider the expertise/incentive of agents and the rigidity/opportunity cost of tenants' search. Aggregately, psychological search frictions result in a dispersed and asymmetric distribution of rent residuals.

Suggested Citation

  • Fan, Ying & Fu, Yuqi & Yang, Zan & Chen, Ming, 2024. "Search frictions in rental markets: Evidence from urban China," China Economic Review, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:chieco:v:83:y:2024:i:c:s1043951x23001852
    DOI: 10.1016/j.chieco.2023.102100
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1043951X23001852
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.chieco.2023.102100?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Antonio Merlo & François Ortalo‐Magné & John Rust, 2015. "The Home Selling Problem: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 457-484, May.
    2. Antonio Merlo & François Ortalo‐Magné & John Rust, 2015. "The Home Selling Problem: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 457-484, May.
    3. Geoff Boeing & Max Besbris & Ariela Schachter & John Kuk, 2021. "Housing Search in the Age of Big Data: Smarter Cities or the Same Old Blind Spots?," Housing Policy Debate, Taylor & Francis Journals, vol. 31(1), pages 112-126, January.
    4. R. Jason Faberman & Marianna Kudlyak, 2019. "The Intensity of Job Search and Search Duration," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 327-357, July.
    5. John M. Clapp & Walter Dolde & Dogan Tirtiroglu, 1995. "Imperfect Information and Investor Inferences From Housing Price Dynamics," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(3), pages 239-269, September.
    6. Gabrovski, Miroslav & Ortego-Marti, Victor, 2021. "Search and credit frictions in the housing market," European Economic Review, Elsevier, vol. 134(C).
    7. Bart J. Bronnenberg & Jun B. Kim & Carl F. Mela, 2016. "Zooming In on Choice: How Do Consumers Search for Cameras Online?," Marketing Science, INFORMS, vol. 35(5), pages 693-712, September.
    8. Andrew Caplin & Mark Dean, 2015. "Revealed Preference, Rational Inattention, and Costly Information Acquisition," American Economic Review, American Economic Association, vol. 105(7), pages 2183-2203, July.
    9. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
    10. Haisken-DeNew, John & Hasan, Syed & Jha, Nikhil & Sinning, Mathias, 2018. "Unawareness and selective disclosure: The effect of school quality information on property prices," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 449-464.
    11. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    12. Ping Cheng & Zhenguo Lin & Yingchun Liu, 2021. "Competing Selling Strategies in the Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 63(3), pages 394-413, October.
    13. Ali Hortaçsu & Chad Syverson, 2004. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 403-456.
    14. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
    15. Pries, Michael & Rogerson, Richard, 2009. "Search frictions and labor market participation," European Economic Review, Elsevier, vol. 53(5), pages 568-587, July.
    16. Li, Yiting, 1999. "Money and Middlemen in an Economy with Private Information," Economic Inquiry, Western Economic Association International, vol. 37(1), pages 1-12, January.
    17. Beales, Howard, et al, 1981. "Consumer Search and Public Policy," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 8(1), pages 11-22, June.
    18. Tianwei Yang & Derek Huo & Lennon H. T. Choy & K. W. Chau, 2023. "The Impact of Measurement and Pricing Cost on Rental Transaction Prices – Evidence from the Institutional Rental Housing Market in Beijing," The Journal of Real Estate Finance and Economics, Springer, vol. 66(1), pages 119-140, January.
    19. Michael Conlin & Ted O'Donoghue & Timothy J. Vogelsang, 2007. "Projection Bias in Catalog Orders," American Economic Review, American Economic Association, vol. 97(4), pages 1217-1249, September.
    20. Fan, Ying & Fang, Shuai & Yang, Zan, 2018. "Living arrangements of the elderly: A new perspective from choice constraints in China," China Economic Review, Elsevier, vol. 50(C), pages 101-116.
    21. Qin, Yu & Wu, Jing & Yan, Jubo, 2019. "Negotiating housing deal on a polluted day: Consequences and possible explanations," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 161-187.
    22. Hagiu, Andrei & Jullien, Bruno, 2014. "Search diversion and platform competition," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 48-60.
    23. Jee W. Hwang & Chun Kuang & Okmyung Bin, 2019. "Are all Homeowners Willing to Pay for Better Schools? ─ Evidence from a Finite Mixture Model Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 58(4), pages 638-655, May.
    24. John R. Logan & Yiping Fang & Zhanxin Zhang, 2009. "Access to Housing in Urban China," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(4), pages 914-935, December.
    25. Peter Leopold S. Bergman & Eric W. Chan & Adam Kapor, 2020. "Housing Search Frictions: Evidence from Detailed Search Data and a Field Experiment," CESifo Working Paper Series 8080, CESifo.
    26. Monika Piazzesi & Martin Schneider & Johannes Stroebel, 2020. "Segmented Housing Search," American Economic Review, American Economic Association, vol. 110(3), pages 720-759, March.
    27. Nicholas Buchholz, 2022. "Spatial Equilibrium, Search Frictions, and Dynamic Efficiency in the Taxi Industry [Search frictions and market power in negotiated-price markets]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(2), pages 556-591.
    28. John W. Pratt & David A. Wise & Richard Zeckhauser, 1979. "Price Differences in almost Competitive Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(2), pages 189-211.
    29. Bikhchandani, Sushil & Sharma, Sunil, 1996. "Optimal search with learning," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 333-359.
    30. Bronson Argyle & Taylor D. Nadauld & Christopher Palmer, 2020. "Real Effects of Search Frictions in Consumer Credit Markets," NBER Working Papers 26645, National Bureau of Economic Research, Inc.
    31. Elder, Harold W & Zumpano, Leonard V & Baryla, Edward A, 1999. "Buyer Search Intensity and the Role of the Residential Real Estate Broker," The Journal of Real Estate Finance and Economics, Springer, vol. 18(3), pages 351-368, May.
    32. Paul Carrillo & Stephanie R. Cellini & Richard K. Green, 2013. "School Quality And Information Disclosure: Evidence From The Housing Market," Economic Inquiry, Western Economic Association International, vol. 51(3), pages 1809-1828, July.
    33. Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-429, July.
    34. Jonathan Levav & Nicholas Reinholtz & Claire Lin, 2012. "The Effect of Ordering Decisions by Choice-Set Size on Consumer Search," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 39(3), pages 585-599.
    35. Fabien Postel-Vinay & Jean-Marc Robin, 2004. "To Match or Not to Match? Optimal Wage Policy With Endogenous Worker Search Intensity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 297-330, April.
    36. Raluca M. Ursu & Daria Dzyabura, 2020. "Retailers’ product location problem with consumer search," Quantitative Marketing and Economics (QME), Springer, vol. 18(2), pages 125-154, June.
    37. Shimizu, Chihiro & Nishimura, Kiyohiko G. & Watanabe, Tsutomu, 2016. "House prices at different stages of the buying/selling process," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 37-53.
    38. Yuming Fu & Wenlan Qian & Bernard Yeung, 2016. "Speculative Investors and Transactions Tax: Evidence from the Housing Market," Management Science, INFORMS, vol. 62(11), pages 3254-3270, November.
    39. Adam, Klaus, 2001. "Learning While Searching for the Best Alternative," Journal of Economic Theory, Elsevier, vol. 101(1), pages 252-280, November.
    40. Han Hong & Matthew Shum, 2006. "Using price distributions to estimate search costs," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 257-275, June.
    41. Johnson, Eric J. & Payne, John W. & Bettman, James R., 1988. "Information displays and preference reversals," Organizational Behavior and Human Decision Processes, Elsevier, vol. 42(1), pages 1-21, August.
    42. Murray, Kyle B. & Di Muro, Fabrizio & Finn, Adam & Popkowski Leszczyc, Peter, 2010. "The effect of weather on consumer spending," Journal of Retailing and Consumer Services, Elsevier, vol. 17(6), pages 512-520.
    43. Fan, Ying & Yang, Zan & Yavas, Abdullah, 2019. "Understanding real estate price dynamics: The case of housing prices in five major cities of China✰," Journal of Housing Economics, Elsevier, vol. 43(C), pages 37-55.
    44. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-2980, October.
    45. John M. Barron & Wesley Mellow, 1979. "Search Effort in the Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 14(3), pages 389-404.
    46. Abdullah Yavas & Thomas J. Miceli & C.F. Sirmans, 2001. "An Experimental Analysis of the Impact of Intermediaries on the Outcome of Bargaining Games," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(2), pages 251-276.
    47. Koster, Hans R.A. & van Ommeren, Jos, 2020. "Housing search frictions and optimal search," Economics Letters, Elsevier, vol. 189(C).
    48. John R. Knight, 2002. "Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(2), pages 213-237.
    49. Peetikarn Pattanawit & Peerayuth Charoensukmongkol, 2022. "Benefits of workplace spirituality on real estate agents’ work outcomes: the mediating role of person-job fit," Management Research Review, Emerald Group Publishing Limited, vol. 45(11), pages 1393-1411, January.
    50. A. Colin Cameron & Douglas L. Miller, 2015. "A Practitioner’s Guide to Cluster-Robust Inference," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 317-372.
    51. Bertrand, Marianne & Shafir, Eldar & Mullainathan, Sendhil, 2006. "Behavioral Economics and Marketing in Aid of Decision Making Among the Poor," Scholarly Articles 2962609, Harvard University Department of Economics.
    52. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
    53. Guo, Juncong & Qu, Xi, 2019. "Spatial interactive effects on housing prices in Shanghai and Beijing," Regional Science and Urban Economics, Elsevier, vol. 76(C), pages 147-160.
    54. Richard Domurat & Isaac Menashe & Wesley Yin, 2021. "The Role of Behavioral Frictions in Health Insurance Marketplace Enrollment and Risk: Evidence from a Field Experiment," American Economic Review, American Economic Association, vol. 111(5), pages 1549-1574, May.
    55. Weizeng Sun & Siqi Zheng & David M. Geltner & Rui Wang, 2017. "The Housing Market Effects of Local Home Purchase Restrictions: Evidence from Beijing," The Journal of Real Estate Finance and Economics, Springer, vol. 55(3), pages 288-312, October.
    56. Fabien Postel-Vinay & Jean-Marc Robin, 2004. "To match or not to match? Optimal wage policy with endogenous worker search intensity," Post-Print hal-03587620, HAL.
    57. Justine Hastings & Ali Hortaçsu & Chad Syverson, 2017. "Sales Force and Competition in Financial Product Markets: The Case of Mexico's Social Security Privatization," Econometrica, Econometric Society, vol. 85(6), pages 1723-1761, November.
    58. Edward A. Baryla & Leonard V. Zumpano, 1995. "Buyer Search Duration in the Residential Real Estate Market: The Role of the Real Estate Agent," Journal of Real Estate Research, American Real Estate Society, vol. 10(1), pages 1-14.
    59. Meghan R. Busse & Devin G. Pope & Jaren C. Pope & Jorge Silva-Risso, 2015. "The Psychological Effect of Weather on Car Purchases," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(1), pages 371-414.
    60. Markus Baldauf & Lorenzo Garlappi & Constantine Yannelis & José Scheinkman, 2020. "Does Climate Change Affect Real Estate Prices? Only If You Believe In It," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1256-1295.
    61. Saurabh Bhargava & Dayanand Manoli, 2015. "Psychological Frictions and the Incomplete Take-Up of Social Benefits: Evidence from an IRS Field Experiment," American Economic Review, American Economic Association, vol. 105(11), pages 3489-3529, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fan, Ying & Fu, Yuqi & Yang, Zan & Chen, Ming, 2023. "Search Frictions in Rental Markets: Evidence from Urban China," Working Paper Series 23/11, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    2. Rafael P. Greminger, 2022. "Optimal Search and Discovery," Management Science, INFORMS, vol. 68(5), pages 3904-3924, May.
    3. Gautier, Pieter A. & Moraga-González, José L. & Wolthoff, Ronald P., 2007. "Structural Estimation of Search Intensity: Do Non-Employed Workers Search Enough?," IZA Discussion Papers 3045, Institute of Labor Economics (IZA).
    4. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    5. Julien Pascal, 2023. "Rental housing market and directed search," BCL working papers 179, Central Bank of Luxembourg.
    6. Daria Dzyabura & John R. Hauser, 2019. "Recommending Products When Consumers Learn Their Preference Weights," Marketing Science, INFORMS, vol. 38(3), pages 417-441, May.
    7. Byrne, David P. & Martin, Leslie A., 2021. "Consumer search and income inequality," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    8. Fan, Ying & Fu, Yuqi & Yang, Zan, 2024. "Door-in-the-face heuristics: Intermediaries’ diversion in rental markets," Working Paper Series 24/2, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    9. De los Santos, Babur, 2018. "Consumer search on the Internet," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 66-105.
    10. Martínez-de-Albéniz, Victor & Belkaid, Abdel, 2021. "Here comes the sun: Fashion goods retailing under weather fluctuations," European Journal of Operational Research, Elsevier, vol. 294(3), pages 820-830.
    11. Bart J. Bronnenberg & Jun B. Kim & Carl F. Mela, 2016. "Zooming In on Choice: How Do Consumers Search for Cameras Online?," Marketing Science, INFORMS, vol. 35(5), pages 693-712, September.
    12. Gautier, Pieter A. & Moraga-González, José L. & Wolthoff, Ronald P., 2016. "Search costs and efficiency: Do unemployed workers search enough?," European Economic Review, Elsevier, vol. 84(C), pages 123-139.
    13. Babur De los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Search with Learning," Working Papers 2012-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    14. Jiarui Liu, 2021. "Sequential Search Models: A Pairwise Maximum Rank Approach," Papers 2104.13865, arXiv.org, revised Nov 2021.
    15. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    16. Vanhala, Juuso, 2006. "Labour taxation and shock propagation in a New Keynesian model with search frictions," Bank of Finland Research Discussion Papers 12/2006, Bank of Finland.
    17. Casares, Miguel, 2013. "On firm-level, industry-level, and aggregate employment fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2963-2978.
    18. Keys, Benjamin J. & Pope, Devin G. & Pope, Jaren C., 2016. "Failure to refinance," Journal of Financial Economics, Elsevier, vol. 122(3), pages 482-499.
    19. Stefan Lamp, 2023. "Sunspots That Matter: The Effect of Weather on Solar Technology Adoption," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(4), pages 1179-1219, April.
    20. Carlo Pizzinelli & Konstantinos Theodoridis & Francesco Zanetti, 2020. "State Dependence In Labor Market Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1027-1072, August.

    More about this item

    Keywords

    Search strategy; Friction; Rental market; China;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:chieco:v:83:y:2024:i:c:s1043951x23001852. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/chieco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.