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American Economic Review: Vol. 101 No. 5 (August 2011)

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State Misallocation and Housing Prices: Theory and Evidence from China

Article Citation

Wang, Shing-Yi. 2011. "State Misallocation and Housing Prices: Theory and Evidence from China." American Economic Review, 101(5): 2081-2107.

DOI: 10.1257/aer.101.5.2081

Abstract

This paper examines the equilibrium price effects of the privatization of housing assets that were previously owned and allocated by the state. I develop a theoretical framework that shows that privatization can have ambiguous effects on prices in the private market, and tha the degree of misallocation of the assets prior to privatization determines the subsequent price effects. I test the predictions of the model using a large-scale housing reform in China. The results suggest that the removal of price distortions allowed households to increase their consumption of housing and led to an increase in equilibrium housing prices. (JEL L33, O18, P25, R31, R38)

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Authors

Wang, Shing-Yi (NYU)

JEL Classifications

L33: Comparison of Public and Private Enterprises and Nonprofit Institutions; Privatization; Contracting Out
O18: Economic Development: Regional, Urban, and Rural Analyses; Transportation
P25: Socialist Systems and Transitional Economies: Urban, Rural, and Regional Economics
R31: Housing Supply and Markets
R38: Production Analysis and Firm Location: Government Policies; Regulatory Policies


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