Search frictions in rental markets: Evidence from urban China

Ying Fan, Yuqi Fu, Zan Yang, Ming Chen

Research output: Journal article publicationJournal articleAcademic researchpeer-review

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.

Original languageEnglish
Article number102100
JournalChina Economic Review
Volume83
DOIs
Publication statusPublished - Feb 2024

Keywords

  • China
  • Friction
  • Rental market
  • Search strategy

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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