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Loertscher, Simon and Niedermayer, Andras (20. September 2012): Assessing the Performance of Simple Contracts Empirically: The Case of Percentage Fees. SFB/TR 15 Discussion Paper No. 435 [PDF, 472kB]

Abstract

This paper estimates the cost of using simple percentage fees rather than the broker optimal Bayesian mechanism, using data for real estate transactions in Boston in the mid-1990s. This counterfactual analysis shows that interme- diaries using the best percentage fee mechanisms with fees ranging from 5.4% to 7.4% achieve 85% or more of the maximum profit. With the empirically observed 6% fees intermediaries achieve at least 83% of the maximum profit and with an optimally structured linear fee, they achieve 98% or more of the maximum profit.

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