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Trust premium in the second-hand housing market: evidence from the negotiation rate

Economics

Trust premium in the second-hand housing market: evidence from the negotiation rate

F. Zhang, H. Zhang, et al.

This groundbreaking study by Fang Zhang, Hang Zhang, and Yun Zhang explores how trust influences second-hand housing transactions in China, revealing a significant trust premium for buyers. The findings shed light on the role of 'youth capital' and local advantages, enhancing our understanding of social credit systems in real estate.... show more
Abstract
Trust is an important social capital and informal institution that influences transaction behaviors, especially in the second-hand housing market of China. This study analyzes the second-hand housing transactions of 17 cities and matches the birthplaces of these traders with CESS2000 to measure the degree of trust in each transaction. Then we use the combined dataset to examine the impact of the degree of trust on the bargaining power during the negotiation process. The empirical results indicate that there is a significant positive correlation between the degree of trust and negotiation rate, and buyers are more likely to capture trust premium. Moreover, "youth capital" emphasizes the role of trust in price bargaining during the second-hand housing transactions. Local advantage has a substitution effect on trust, which means it is an alternative explanation of trust affecting price bargaining during the second-hand housing transactions. Furthermore, the impact of trust varies by gender with male traders being more affected than female traders. All in all, this study provides practical implications of trust premium in housing transactions, and policy implications of establishing a social credit system. Governments can reduce transaction friction and transaction costs by establishing an appropriate formal institution, such as a personal credit database. As research on trust premium affecting micro-behaviors in the housing market is scarce, this study aims to fill this gap.
Publisher
HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS
Published On
Aug 10, 2023
Authors
Fang Zhang, Hang Zhang, Yun Zhang
Tags
trust
housing transactions
China
negotiation
social credit systems
trust premium
gender differences
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