Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2010-01-04 Number: 10-005/3 Author-Name: James Albrecht Author-Workplace-Name: Georgetown University Author-Name: Pieter A. Gautier Author-Workplace-Name: VU University Amsterdam Author-Name: Susan Vroman Author-Workplace-Name: Georgetown University Title: Directed Search in the Housing Market Abstract: This discussion paper resulted in a publication in the 'Review of Economic Dynamics'.
In this paper, we present a directed search model of the housing market. The pricing mechanism we analyze reflects the way houses are bought and sold in the United States. Our model is consistent with the observation that houses are sometimes sold above, sometimes below and sometimes at the asking price. We consider two versions of our model. In the first version, all sellers have the same reservation value. In the second version, there are two seller types, and type is private information. For both versions, we characterize the equilibrium of the game played by buyers and sellers, and we prove efficiency. Our model offers a new way to look at the housing market from a search-theoretic perspective. In addition, we contribute to the directed search literature by considering a model in which the asking price (i) entails only limited commitment and (ii) has the potential to signal seller type. Classification-JEL: D83, R31 Keywords: Directed Search, Housing File-Url: http://papers.tinbergen.nl/10005.pdf File-Format: application/pdf File-Size: 680907 bytes Handle: RePEc:tin:wpaper:20100005