The Power of Mandatory Quality Disclosure: Evidence from the German Housing Market
42 Pages Posted: 17 Jun 2016 Last revised: 21 Jun 2018
Date Written: May 29, 2018
Many countries have introduced Energy Performance Certificates (EPCs) to mitigate information asymmetry problems with respect to the thermal quality of houses. Using data on real estate advertisements that cover large parts of the German housing market, this paper empirically investigates the consequences of a shift from a voluntary to a mandatory quality disclosure regime on the offer prices of houses. Illustrated by a stylized theoretical model, we test the following key hypothesis: Prices for houses whose owners would not voluntarily disclose their house’s energy consumption in real estate advertisements should decrease upon a shift to a mandatory disclosure scheme. Employing an instrumental variable approach to cope with the endogeneity of disclosure decisions, our analysis demonstrates the power of mandatory disclosure rules to increase market transparency and to align prices with the energy performance of the house.
Keywords: Information asymmetry, mandatory disclosure, environmental certification
JEL Classification: D82, L15, Q58
Suggested Citation: Suggested Citation