Adversarial Brokerage in Residential Real Estate Transactions: The Impact of Separate Buyer Representation

Although substantial research effort has been directed to the examination of optimal search and pricing behavior under traditional brokerage arrangements, market outcomes under conditions of undisclosed subagency and buyer representation have not been fully explored. This study applies the legal and economic theory of agency to real estate markets with cooperating brokers. The existence of cooperating brokers acting as subagents of the seller with the buyer’s full knowledge does not change the buyer’s and seller’s net payoffs relative to the single-agent case. However, when the buyer mistakenly believes that the cooperating broker/subagent is acting as his agent in negotiations, there may be informational gains that result in a higher selling price and a higher payoff to the seller at the expense of the buyer. The analysis indicates that buyer brokers may be a potential solution to this agency problem. When both parties to a real estate transaction have separate representation, their net payoffs are shown to be higher and the sales price lower than under traditional brokerage arrangements. The result is dependent on several factors, including: market conditions, relative bargaining power of the parties, method of broker compensation, and disclosure of the status of the buyer broker.

Life insurer cost of equity with asymmetric risk factors

Includes bibliographical references (pages 17-19).Published as: The Finanicial Review, vol. 50, no. 3, July 2015, pp. 435-457, https://doi.org/10.1111/fire.12073.This study presents an improved model for estimating life insurer cost of capital with the inclusion of upside and downside risk factors and controlling for life insurer characteristics. Although various asymmetric measures of market risk have been shown to be priced factors for the broader equity market, life insurer realized equity returns include a much larger premium for bearing downside risk, even after controlling for firm characteristics and other measures of risk. Cross‐sectional regression analysis finds a positive (negative) premium for downside (upside) betas, conditional on down and up markets, respectively. Coskewness and cokurtosis are also priced factors

Alleviating adverse selection in labor markets: The wage/pension decision as a signal of worker quality

Adverse selection problems exist in labor contracting when employers are unable to identify worker quality at the outset of the employment relationship. Worker quality, in this context, is the combination of effort and ability that results in particular levels of labor output. Graphical analysis is employed to show that a separating equilibrium of the type identified in the insurance literature is possible in a single period context, wherein low quality workers are given an all cash wage commensurate with their quality and high quality workers are able to signal their type by accepting a smaller cash wage plus a deferred pension benefit subject to a vesting requirement that in total is equivalent to their marginal product. However, the long-term context of labor contracting creates multi-period incentive problems which undermine the single period equilibrium outcomes. In a multi-period context, the equilibrium outcome is shown to be a pooled wage/pension first period contract (wherein all starting workers are offered the same contract) and an experience rated second period contract based on information gains in the earlier work period. As in the single period context, the willingness of the high quality workers to accept compensation in the form of deferred pension benefits signals their quality level. Empirical tests matching 1989 IRS Form 5500 pension data with Compustat financial information on plan sponsors confirm a strongly positive relationship between pension generosity and productivity for defined contribution plans. The theoretical and empirical model provide a partial explanation for the nature and variety of wage/pension contracts in existence across and within both firms and industries

Household financial planning strategies for managing longevity risk

Includes bibliographical references (pages 24-25).Published as: Financial Planning Review, vol. 1, no. 1-2, September 2018, e1007, https://doi.org/10.1002/cfp2.1007.This study examines how longevity risk, in conjunction with other postretirement risks, impacts retirement consumption decisions and retirement wealth needs. We develop a theoretical model that directly examines the relationship between longevity risk and consumption/savings, and empirically test these theoretical implications by simulating retirement outcomes for representative households, including longevity, inflation, investment, health, and long‐term care risks. Our study shows that the top third of households by longevity need approximately 20% more retirement wealth than those households who live only an average life span. Investigations of various risk mitigation strategies suggest that combination strategies, particularly those that include delayed retirement, can significantly reduce the retirement wealth target. This research provides valuable new insights on household financial planning strategies for managing longevity risk

Dual private pension households and the distribution of wealth in the United States

Using data from the 1998 Survey of Consumer Finances, this paper examines the impact of dual private pension households on the distribution of household wealth in the United States. This paper builds on three lines of previous research: inquiries into assortative mating , i.e., the tendency for people with similar characteristics to marry; studies emphasizing the importance of pensions as a component of household wealth; and recent research examining how wives earnings alter the distribution of household income. Evidence of assortative private pensions , i.e., the tendency for people with private pensions to be married to people with private pensions, is presented. Estimates of the expected value of private pension and social security wealth are added to measures of household non-retirement net worth to obtain the value household wealth. These data indicate that wives private pensions in dual private pension households contribute marginally to greater equality in the wealth distribution.