Search Frictions in Rental Markets: Evidence from Urban China

Ying Fan (), Yuqi Fu (), Zan Yang () and Ming Chen ()
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Ying Fan: Department of Building and Real Estate, The Hong Kong Polytechnic University
Yuqi Fu: Department of Construction Management, Tsinghua University
Zan Yang: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Teknikringen 10B, 100 44 Stockholm, Sweden
Ming Chen: Department of Building and Real Estate, The Hong Kong Polytechnic University

No 23/11, Working Paper Series from Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

Abstract: In this paper, we study consumer search in a housing market subject to objective frictions induced by intermediaries and psychological frictions intrinsic to tenants themselves. Using rental data from a leading real estate brokerage company during 2016 and 2018, we find a unimodal distribution of objective search frictions and a bimodal distribution of psychological search frictions revealed by tenants’ search behaviors. This bimodal distribution originates from divergent search strategies of tenants with different search criteria. Furthermore, psychological search frictions explain the deviation between a tenant’s actual choice and stated preference, and enhance the degree of overpay/mark-up in the deal. These effects of psychological frictions led by divergent search strategies hold when we consider the expertise/incentive of agents and the rigidity/opportunity cost of tenants’ search. Aggregately, psychological search frictions result in a dispersed and asymmetric distribution of rent residuals.

Keywords: Search strategy: Friction; Rental Market; China (search for similar items in EconPapers)
JEL-codes: D83 D91 R30 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2023-11-08
New Economics Papers: this item is included in nep-cna and nep-ure
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