Assessing the Performance of Simple Contracts Empirically: The Case of Percentage Fees

Simon Loertscher and Andras Niedermayer

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: This paper estimates the cost of using simple percentage fees rather than the broker optimal Bayesian mechanism, using data for real estate transactions in Boston in the mid-1990s. This counterfactual analysis shows that interme- diaries using the best percentage fee mechanisms with fees ranging from 5.4% to 7.4% achieve 85% or more of the maximum profit. With the empirically observed 6% fees intermediaries achieve at least 83% of the maximum profit and with an optimally structured linear fee, they achieve 98% or more of the maximum profit.

Keywords: brokers; simple mechanisms; percentage fees; real estate brokerage (search for similar items in EconPapers)
JEL-codes: C72 C78 L13 (search for similar items in EconPapers)
Date: 2012-09-20
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Citations: View citations in EconPapers (4)

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Working Paper: Assessing the Performance of Simple Contracts Empirically:The Case of Percentage Fees (2012)
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