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
Date Written: May 19, 2011
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: Suggested Citation