Opportunistic Matching in the Housing Market Over the Cycle

Susan Vroman, Jonathan Heathcote, Axel Anderson and James Albrecht

No 815, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: Not all meetings, however, necessarily lead to transactions. A match occurs if and only if the sale results in a positive surplus; otherwise, the potential buyer and seller continue to search. The continuation flow values that the prospective buyer and seller bring to the table as well as the match-specific component determine whether this surplus exists and therefore whether an exchange takes place. When a desperate seller, i.e., one with a low flow value, meets a prospective buyer, she is willing to accept a relatively low price and so is more likely to sell. Similarly, when a desperate buyer finds a prospective seller, he is more likely to buy. Thus, the outcome of a meeting between a prospective buyer-seller pair, i.e., whether a sale occurs and, if so, at what price, depends on the buyer's and seller's types, which in turn are related to their durations of search. We model business cycle effects by allowing the flow of buyers and sellers into the market and the transition rates into desperation to vary.

Date: 2009
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