HIPerbolic discounting
Latest in my series of bad puns on the word "hyperbolic". HIPs are being scrapped by the new government. This will provide relief to millions of annoyed estate agents ad house sellers everywhere. But why? HIPs should be a gift from the economics profession which is joyfully accepted by buyers, sellers and agents. The reason? Because houses are a classic " market for lemons ". A simple explanation of what this means and what the consequences are: The seller of a house knows much more about it than the buyer. Therefore, if the seller thinks it is worth £200,000, a buyer should apply a discount to take account of the risk that something is wrong. Let's say they apply a 10% discount and offer £180,000. After the discount, some sellers who do not have anything wrong with their house will prefer to stay rather than sell for less than it's worth. Other sellers, who do have a skeleton in the cupboard, will keep their house on the market. The average quality...