Assessing the Performance of Simple Contracts Empirically: The Case of Percentage Fees

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

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.

• Item Type: Paper (Discussion Paper)
• Keywords: brokers, simple mechanisms, percentage fees, real estate brokerage
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > C5 - Wettbewerbspolitik als Steuerung von Wettbewerbsprozessen
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: C72, C78, L13
• Language: English