Paying Extra for a Label? Evidence of Principal-Agent Problem in the Housing Market

54 Pages Posted: 4 May 2020 Last revised: 11 Sep 2020

See all articles by Keyang Li

Keyang Li

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Jianwei Xing

Peking University - National School of Development

Jubo Yan

Nanyang Technological University - School of Social Sciences

Date Written: April 7, 2020

Abstract

Intermediaries play an important role in markets with asymmetric information by reducing the search friction and uncertainty for buyers and sellers. However, when a conflict of interest arises, agents may not fully act on behalf of their clients. Using a unique dataset of both housing resale transactions and agent showing records from a major brokerage firm, we document the brokerage agents’ steering behaviors induced by the differential treatment of certain housing units under the taxation scheme in China. Our results show brokerage agents do not always help consumers reduce information asymmetry but strategically promote the units that receive the favorable taxation treatment, because these units offer higher expected commissions. The steering efforts lead to better sales performances of the labeled houses and are highly correlated with the agents’ ability and steering incentives. The buyers thus bear the welfare consequences from potential mismatch and the additional cost in acquiring the labeled units.

Keywords: Steering, Conflict of interest, Market intermediary, Housing market

JEL Classification: D83, D91, R31

Suggested Citation

Li, Keyang and Wu, Jing and Xing, Jianwei and Yan, Jubo, Paying Extra for a Label? Evidence of Principal-Agent Problem in the Housing Market (April 7, 2020). Available at SSRN: https://ssrn.com/abstract=3570588 or http://dx.doi.org/10.2139/ssrn.3570588

Keyang Li (Contact Author)

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Jianwei Xing

Peking University - National School of Development ( email )

Beijing, 100871
China

Jubo Yan

Nanyang Technological University - School of Social Sciences ( email )

HSS 04-68, 14 Nanyang Drive
Singapore, 639798
Singapore

HOME PAGE: http://juboyan.weebly.com

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