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Search, Auctions, and Price Formation

Paper Session

Sunday, Jan. 3, 2021 10:00 AM - 12:00 PM (EST)

Hosted By: American Real Estate and Urban Economics Association
  • Chair: William Wheaton, Massachusetts Institute of Technology

Liquidity in Residential Real Estate Markets

Nadia Kotova
,
Stanford University
Anthony Lee Zhang
,
University of Chicago

Abstract

We develop two model-based measures of housing market liquidity: time-on-market
and price dispersion. We show how these arise from a search-and-bargaining
model of housing markets, in which sellers face a trade-off between selling quickly
and selling at high prices. The tradeoffs faced by individual sellers aggregate to a
market-level relationship between average time on market and average idiosyncratic
price dispersion. We measure time-on-market and price dispersion in a large sample
of US counties, and show cross-sectional and time-series evidence supporting the
predictions of our model. Calibrated to the data, the model can simultaneously match
the macro-relationships between TOM and PD, and produce micro-estimates of the
TOM-price tradeoff which are consistent with estimates in the housing literature.

Information Disclosure in Housing Auctions

Alina Arefeva
,
University of Wisconsin-Madison
Delong Meng
,
Southwest Baptist University

Abstract

We study the optimal selling mechanism and information disclosure policy for a house seller. The seller can select any selling mechanism, including an auction, and release additional information about the house to buyers. Release of information adjusts the buyers' values and bids. We find that the optimal mechanism is a combination of the optimal auction and full information disclosure. But if the seller uses a second-price auction instead, concealing additional information about the house may be optimal for her. Moreover, the seller can extract buyers' private value adjustments by selling them contracts similar to European call options.

Job Match and Housing Tenure Self-Selection

Edward Coulson
,
University of California-Irvine
Walter D'Lima
,
Old Dominion University
David Jinkins
,
Copenhagen Business School

Abstract

Homeownership, though it brings both private and social benefits, entails substantial fixed costs. Indeed, standard personal financial advice suggests that homeownership should only be undertaken when one's job situation is stable and job movement is not likely in the near future. Very little research has asked whether this advice is followed, so our goal is to rectify that omission. We construct a theoretical model where the decision to become a homeowner only occurs when the householder is employed at a job with productivity that matches their ability. To test our model, we employ detailed information on workers and housing decisions from Danish administrative data. We construct a measure of job mismatch and
nd evidence suggesting that homeowners are indeed better matched at their jobs than renters, and that an improved match leads renters to become homeowners. An examination of job durations suggests that homeownership is correlated with longer job duration both because of a direct causal effect and also due to an indirect effect through selection into homeownership.

Matching and Agglomeration: Theory and Evidence from Japanese Firm-to-Firm Trade

Yuhei Miyauchi
,
Boston University

Abstract

Why are economic activities geographically concentrated? I argue that matching frictions and increasing returns to scale in firm-to-firm matching for input trade is an important source of agglomeration. Using a yearly panel of firm-to-firm trade in Japan and unanticipated supplier bankruptcies as a natural experiment, I first document that firms rematch with new suppliers at a faster rate in locations and industries with a higher density of alternative suppliers. At the same time, the new supplier matching rate does not decrease with the geographic density of other buyers, hence the matching rate exhibits increasing returns to scale. Motivated by these findings, I develop a structural general equilibrium model of firm-to-firm trade with matching frictions. I structurally estimate the key parameters of the model to precisely replicate the reduced-form estimates, and I show that this agglomeration mechanism explains about a third of the population-density premium in nominal wages in Japan.
Discussant(s)
Jiro Yoshida
,
Pennsylvania State University
Jia Xie
,
California State University-Fullerton
Tomasz Piskorski
,
Columbia University
Gilles Duranton
,
University of Pennsylvania
JEL Classifications
  • D0 - General