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Matching Models and Housing Markets: the Role of the Zero-Profit Condition

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  • Gaetano Lisi

    (Creativity and Motivations Economic Research Centre (CreaM) - Department of Economics and Law, University of Cassino and Southern Lazio, Italy)

Abstract

The recent and growing literature which has extended the use of search and matching models even to the housing market does not use the free entry or zero-profit assumption as a key condition for solving the equilibrium of the model. This is because a straightforward adaptation of the basic matching model to the housing market seems impossible. However, this short paper shows that the zero-profit condition can be easily reformulated to take the distinctive features of the housing market into account. Indeed, the zero-profit condition considers the possibility that a buyer can become a seller and vice versa, since it is used to find the equilibrium of the model where the transition process from seller (buyer) to buyer (seller) comes to an end.

Suggested Citation

  • Gaetano Lisi, 2013. "Matching Models and Housing Markets: the Role of the Zero-Profit Condition," Economic Research Guardian, Mutascu Publishing, vol. 3(1), pages 54-60, June.
    • Handle: RePEc:wei:journl:v:3:y:2013:i:1:p:54-60
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    References listed on IDEAS

    as
    1. Charles Ka Yui Leung & Jun Zhang, 2011. ""Fire Sales" in Housing Market: Is the House- Search Process Similar to a Theme Park Visit?," International Real Estate Review, Global Social Science Institute, vol. 14(3), pages 311-329.
    2. Charles Leung & Youngman Leong & Siu Wong, 2006. "Housing Price Dispersion: An Empirical Investigation," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 357-385, May.
    3. Gaetano Lisi, 2013. "On the Functional Form of the Hedonic Price Function: A Matching-theoretic Model and Empirical Evidence," International Real Estate Review, Global Social Science Institute, vol. 16(2), pages 189-207.
    4. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, April.
    5. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-1292, December.
    6. Gaetano Lisi, 2011. "The Hedonic Price Function in a Matching Model of Housing Market," Economics Bulletin, AccessEcon, vol. 31(3), pages 2347-2355.
    7. Brian Petereson, 2009. "Fooled by Search: Housing Prices, Turnover and Bubbles," Caepr Working Papers 2009-004, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    8. Robert Novy‐Marx, 2009. "Hot and Cold Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(1), pages 1-22, March.
    9. Monika Piazzesi & Martin Schneider, 2009. "Momentum Traders in the Housing Market: Survey Evidence and a Search Model," American Economic Review, American Economic Association, vol. 99(2), pages 406-411, May.
    10. Martin Schneider & Monika Piazzesi, 2009. "Momentum traders in a search model of the housing market," 2009 Meeting Papers 1266, Society for Economic Dynamics.
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    More about this item

    Keywords

    Housing Markets; Matching models; Zero-profit (or free-entry) condition;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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