Let the Buyer or Seller Beware: Measuring Lemons in the Housing Market Under Different Doctrines of Law Governing Transactions and Information

36 Pages Posted: 30 Mar 2014

See all articles by K.W. Chau

K.W. Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics

Lennon HT Choy

Hong Kong Polytechnic University

Multiple version iconThere are 2 versions of this paper

Date Written: May 19, 2011

Abstract

Under information asymmetry, lemons tend to be overpriced. Yet, how much overpricing premium the lemons can command is contingent on the underlying legal institutions. A set of transaction data from Hong Kong’s housing market reveals that durable lemons are overpriced by 6.7% and 9.9% under the rules of “let the seller beware” (caveat venditor) and “let the buyer beware” (caveat emptor) respectively. By switching the legal regime from the former to the latter, this represents a 32.3% increase of the overpricing premium. However, it does not suggest that let the seller beware is necessarily a more efficient legal doctrine. New institutions with regard to information disclosure are emerging to deal with the lemon problem.

Keywords: Caveat emptor, Caveat venditor, Housing Market, Information asymmetry, Property Presale

JEL Classification: A10, A12, D23, D82, D83, K10, M20

Suggested Citation

Chau, Kwong Wing and Choy, Lennon HT, Let the Buyer or Seller Beware: Measuring Lemons in the Housing Market Under Different Doctrines of Law Governing Transactions and Information (May 19, 2011). Journal of Law and Economics, Vol. 54, No. 4, 2011, Available at SSRN: https://ssrn.com/abstract=2417597

Kwong Wing Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics ( email )

Ronald Coase Centre for Property Rights Research
Pokfulam Road
Hong Kong
Hong Kong
(852)28592128 (Phone)
(852)25599457 (Fax)

Lennon HT Choy (Contact Author)

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

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