Research
Job Market Paper
Presale, Credit Constraints and Housing Supply
Slides, November 2024. WP coming soon.
Abstract: Abstract Home builders rely on a combination of traditional credit and presale to fund construction. In presale, the buyer provides an advanced payment to the builder, subject to repayment through the delivery of a finished condo. This unusual financial contract has an implied interest rate which equates the presale price to the NPV of the finished condo's value. When this interest rate is above the builder's cost of traditional credit, the builder's willingness to obtain funds at such a high rate may imply credit constraints. I show how the presale interest rate can be measured, apply it to the Israeli housing market in 2010-2019 and find the presale rate is generally above the upper bound of the builder's costs of credit, accounting for factors other than credit constraints that may lead builders to sell at such rates. I then develop a new equilibrium model of the housing market with overlapping generations of builders with time to build and borrowing limits as well as overlapping generations of households with dispersed incomes and access to frictional mortgage finance. I explain how each of those features is essential to ensure a presale market can emerge endogenously alongside markets for completed houses and second hand houses. I calibrate it to the Israeli economy and conduct two counterfactual experiments. Removing presale while the borrowing limit is in effect causes the production of houses and affordability to collapse, which underscores the role of presale in mitigating credit constraints. Removing the borrowing limit while still allowing presale causes presale to disappear endogenously. It also causes construction to become much more capital intensive and much less land intensive. Density increases and land use for housing declines with at most a minor reduction in equilibrium supply which occurs under rather extreme conditions.
Ongoing Projects
Search in Opaque Markets
slides, May 2024. WP version coming soon.
Abstract: I study the effects of improved public information on equilibrium welfare and price dispersion, providing sufficient conditions for negative and positive effects. Public information affects welfare by reducing excessive (though rational) pessimism induced by sequential learning. Reduced pessimism results in fewer agents withdrawing from the market prematurely (compared with the full information benchmark), which increases own ex-post utility in expectation but may also cause a congestion externality. I show that either effect can dominate. Observed search duration on the short side of the market is an indicator of the welfare effects of public information. The context is a search, matching and bargaining market with uncertainty about the meeting probability on both sides. Fully rational, ex-ante identical participants gather private information endogenously through costly search. Full trade is the unique perfect Bayesian equilibrium under general conditions. Full trade implies learning terminates following a positive but not following a negative signal, which results in a declining belief path and in declining reservation prices during search. Public information is modelled as the precision of a public signal about the true state. The results hold for any prior distribution where a more precise public signal slows learning.
Belief Updating During Unemployment (with Nofar Duani)
Abstract: We design an experiment where we repeatedly elicit the full distribution of job seekers’ beliefs about their future length of unemployment and provide them with information about the true distribution of comparable job seekers. This allows us to study how job seekers update their beliefs based on official data. By eliciting the beliefs of the same job seekers again after several weeks, as well as their search outcomes during these weeks, we can further study how beliefs are updated based on search outcomes. Eliciting the full prior of beliefs is a novel feature of our design which allows us to separately estimate changes in the mean as well as in the dispersion of beliefs. The dynamics of belief dispersion are crucial for understanding how confidence and learning interact to shape the path of reservation wages and the timing of quitting from search.
Publications
'Traffic Light' Theory for Covid-19 Spatial Mitigation Policy Design (with Xieer Dai; Michael Beenstock; Daniel Felsenstein; David Genesove)
January 2023, Journal of Spatial Econometrics
Abstract: We suggest the use of outdegrees from graph theory to rank locations in terms of their contagiousness. We show that outdegrees are equal to the column sums of spatial autoregressive matrices, which may be estimated using econometric methods for spatial panel data. In contrast to outdegree, R is invalid for 'traffic light' shading because it fails to distinguish between the export and import of contagion between sub-national locations. Simulation methods are used to illustrate the concept of outdegrees and its structural determinants in terms of centrality, indigenous contagion and spatial contagion. An empirical illustration is presented for Israel. A secondary criterion for traffic light shading involves the stochastic structure of morbidity shocks, which induce 'spiking' through their autoregressive persistence, conditional heteroscedasticity and diffusion jump parameters.
Older Working Papers
June 2022
Abstract: This study shows that when uncertainty is higher, developers are willing to forego more revenue to sell early. The results are economically large, highly significant, and robust to various specifications. Using a new model of sale timing under uncertainty, I show that these results are consistent with developers using presale to accumulate precautionary savings to hedge against the possibility of demand being low when the building is completed. This precautionary motive for presale is consistent with industry participants reporting that a “failed” project results in reputational damage that is far greater than any increase in reputation from “successful” projects. Thus, industry participants’ statements and empirical evidence both point towards a negatively skewed outcome structure for developers. Developers having such an outcome structure has important implications for housing policy and affordability as well as for our understanding of macroeconomic fluctuations.
March 2018
Abstract: This work investigates how the amount of information available for a given transaction affects the price distribution and seller time on the market in that transaction. Novel measures of transaction level information are constructed based on random omission in records of previous transactions in similar apartments. Some of the ex ante more reliable information measures yield strong evidence that more information can lead to shorter seller time on the market. Other information measures either have no effect, have an unstable effect or are not credible. The evidence regarding the effect on the price distribution (price levels and variance) is inconclusive. The evidence regarding time on the market is consistent with previous evidence and with theoretical predictions.