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Optimal Contract Design in Residential Brokerage
Author(s) -
Liu Peng,
Xie Jia
Publication year - 2019
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12283
Subject(s) - commission , private information retrieval , real estate , principal (computer security) , business , microeconomics , information asymmetry , economics , finance , computer science , computer security
We introduce a principal–agent model where a real estate agent has private information that is important for a home seller to make decisions on marketing strategies. The seller designs a commission contract that motivates the agent to acquire information and then truthfully reveal it. We find that fixed commission rates are optimal if the agent has no private information or if his private information is given. If the agent's private information is acquired endogenously, the optimal commission rate should vary with the information revealed by the agent. The varying commission rate, however, is associated with distorted decisions on marketing strategies.