۱- Introduction

۲- Literature review on WTA–WTP disparity and testable hypotheses

۳- Experimental strategy

۴- Results and discussion

۵- Conclusions

References

Abstract

This study explores how information helps housing consumers make informed decisions and discusses potential market outcomes. We analyse the interaction between the disclosure of information on property conditions and the disparity between home sellers’ willingness to accept (WTA) and home buyers’ willingness to pay (WTP). Three hypotheses are derived and validated through field experimental investigation within the property market. We find that a WTA–WTP disparity exists. The identified policy instrument for information disclosure appears to function as expected. The WTA–WTP disparity is considerably reduced after information disclosure, and market liquidity and efficiency are improved. This study is an important complement to prior research on how information changes the behaviour of consumers in housing markets. Findings can inform central governments about the wider benefits of smart disclosure in the future, as well as the scope, format and structure of information supplied to general housing consumers to promote efficiency.

Introduction

“Smarter information, smarter consumers”, the Nobel laureate and behavioural economist Richard Thaler told us. The idea of this statement summarises and has guided government efforts and practice in recent years. In the US, the disclosure of products, services and other information in many sectors is required by federal laws and regulations. Such requirement allows the release of information intelligently and efficiently and ensures the public’s easy access to and use of available information. In the UK, central government has been undertaking programs to provide individuals with access to information, thereby empowering consumers in their decision-making process. Efforts to disclose information and potential opportunities can be seen in the finance, education, health care, energy and other private sectors. By definition, an efficiently functioning market requires full information. The housing market is no exception. Homeowners are known to have a natural information advantage over potential buyers in housing markets. Information asymmetries and gaps between sellers and buyers are wellidentified in the housing sector (e.g. Eichholtz, Holtermans, & Yönder, 2016; Kurlat & Stroebel, 2015; Ling, Naranjo, & Petrova, 2018; Lützkendorf & Speer, 2005; Rutherford, Springer, & Yavas, 2007; Votsis & Perrels, 2016; Walsh & Mui, 2017). Many previous studies focused only on how information asymmetry affects the property transaction price, which is the final outcome of a real estate transaction. The present study complements prior research by analysing the interaction between the disclosure of information on property conditions and the disparity between the willingness to accept (WTA) of home sellers and the willingness to pay (WTP) of home buyers (referred to as the WTA–WTP disparity hereafter).