Template-Type: ReDIF-Paper 1.0
Author-Name: Derek G. Stacey
Author-X-Name-First: Derek
Author-X-Name-Last: Stacey
Author-Email: dstacey@economics.ryerson.ca
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Title: Information, Commitment, and Separation in Illiquid Housing Markets
Abstract: 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 facilitate the search process 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.
Classification-JEL: D40; D44; D83; R31
Keywords: Housing, Search, Liquidity, Real Estate Agents
Length: 48 pages
Creation-Date: 2013-12
Number: 039
File-URL: http://economics.ryerson.ca/workingpapers/wp039.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp039