Ruhr Economic Papers

Ruhr Economic Papers #684

The Power of Mandatory Quality Disclosure: Evidence from the German Housing Market

by Manuel Frondel, Andreas Gerster and Colin Vance

RGS, RUB, RWI, 03/2017, 35 S./p., 8 Euro, ISBN 978-3-86788-794-6 DOI: 10.4419/86788794

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Abstract

Many countries have introduced Energy Performance Certificates to mitigate the information asymmetry with respect to the thermal quality of houses. Drawing on a stylized theoretical model that is coupled with comprehensive data on real estate advertisements in the German housing market, this paper investigates the causal effect of disclosing energy information on the offer prices of houses. We are particularly interested in testing whether house sellers who would not voluntarily disclose the house’s energy consumption decrease the offer price upon a shift to a mandatory disclosure scheme. Employing both within-variation from panel data and an instrumental-variable approach to cope with the endogeneity of disclosure decisions, our analysis demonstrates the power of mandatory disclosure rules to increase market transparency and to reduce prices.

JEL-Classification: D82, L15, Q58

Keywords: Information asymmetry; mandatory disclosure; environmental certification

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