The Power of Mandatory Quality Disclosure: Evidence from the German Housing Market

42 Pages Posted: 17 Jun 2016 Last revised: 21 Jun 2018

See all articles by Manuel Frondel

Manuel Frondel

RWI Leibniz Institute for Economic Research ; Ruhr University Bochum (RUB)

Andreas Gerster

RWI - Leibniz Institute for Economic Research

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)

Date Written: May 29, 2018

Abstract

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

Frondel, Manuel and Gerster, Andreas and Vance, Colin, The Power of Mandatory Quality Disclosure: Evidence from the German Housing Market (May 29, 2018). Available at SSRN: https://ssrn.com/abstract=2796532 or http://dx.doi.org/10.2139/ssrn.2796532

Manuel Frondel

RWI Leibniz Institute for Economic Research ( email )

Hohenzollernstr. 1-3
45128 Essen
Germany

Ruhr University Bochum (RUB) ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Andreas Gerster (Contact Author)

RWI - Leibniz Institute for Economic Research ( email )

Hohenzollernstraße 1-3
Essen
Germany

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany
0049-201-8149-237 (Phone)

HOME PAGE: http://www.rwi-essen.de

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