Negotiating Housing Deal on a Polluted Day: Consequences and Possible Explanations

55 Pages Posted: 28 Mar 2018

See all articles by Yu Qin

Yu Qin

National University of Singapore (NUS) - Department of Real Estate

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Jubo Yan

Cornell University

Date Written: March 22, 2018

Abstract

The topic of air pollution has drawn considerable attention globally. In this paper, we examine the immediate effect of air pollution on a substantial decision, that is, a housing purchase. By linking housing purchasing behavior with the air quality in Beijing, we document market participants’ behaviors unexplained by rational economic theories. Our main result suggests that an increase of the PM2.5 by 100 on the day of the negotiation leads to an approximately 0.19% increase in the per square meter transaction price. Using heterogeneous analyses, we rule out rational explanations and demonstrate that our empirical results are consistent with behavioral theories under weak assumptions.

Keywords: Air Pollution, Housing Market, Salience, Projection Bias

JEL Classification: D91, R31, L85, Q51

Suggested Citation

Qin, Yu and Wu, Jing and Yan, Jubo, Negotiating Housing Deal on a Polluted Day: Consequences and Possible Explanations (March 22, 2018). Available at SSRN: https://ssrn.com/abstract=3147359 or http://dx.doi.org/10.2139/ssrn.3147359

Yu Qin (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Jubo Yan

Cornell University ( email )

Ithaca, NY 14853
United States

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