Property Condition Disclosure Law: Why Did States Mandate 'Seller Tell All'?

Thirty-six US states have already enacted some form of seller's property condition disclosure law. At a time when there is a movement in this direction nationally, this paper attempts to ascertain the factors that lead states to adopt disclosure law. Motivation for the study stems from the fact that not all states have yet adopted the law, and states that have enacted the law have done so in different years. The analytical structure employs hazard models, using a unique set of economic and institutional attributes for a panel of 50 US States spanning 21 years, from 1984 to 2004. The proportional hazard analysis of law adoption reveals that greater number of disciplinary actions tends to favor passage of the law. Greater broker supervision, implying generally higher awareness among real estate agents, seems to have a negative impact on the likelihood of a state adopting a property condition disclosure law.

Property Condition Disclosure Law: Does 'Seller Tell All' Matter in Property Values?

At the time when at least two-thirds of the US states have already mandated some form of seller's property condition disclosure statement and there is a movement in this direction nationally, this paper examines the impact of seller's property condition disclosure law on the residential real estate values, the information asymmetry in housing transactions and shift of risk from buyers and brokers to the sellers, and attempts to ascertain the factors that lead to adoption of the disclosur law. The analytical structure employs parametric panel data models, semi-parametric propensity score matching models, and an event study framework using a unique set of economic and institutional attributes for a quarterly panel of 291 US Metropolitan Statistical Areas (MSAs) and 50 US States spanning 21 years from 1984 to 2004. Exploiting the MSA level variation in house prices, the study finds that the average seller may be able to fetch a higher price (about three to four percent) for the house if she furnishes a state-mandated seller's property condition disclosure statement to the buyer.

Nonpoint Pollution Control: Inducing First-best Outcomes through the Use of Threats

In this paper we develop a simple economic model to analyze the use of a policy that combines a voluntary approach to controlling nonpoint-source pollution with a background threat of an ambient tax if the voluntary approach is unsuccessful in meeting a pre-specified environmental goal. We first consider the case where the policy is applied to a single farmer, and then extend the analysis to the case where the policy is applied to a group of farmers. We show that in either case such a policy can induce cost-minimizing abatement without the need for farm-specific information. In this sense, the combined policy approach is not only more effective in protecting environmental quality than a pure voluntary approach (which does not ensure that water quality goals are met) but also less costly than a pure ambient tax approach (since it entails lower information costs). However, when the policy is applied to a group of farmers, we show that there is a potential tradeoff in the design of the policy. In this context, lowering the cutoff level of pollution used for determining total tax payments increases the likely effectiveness of the combined approach but also increases the potential for free riding. By setting the cutoff level equal to the target level of pollution, the regulator can eliminate free riding and ensure that cost-minimizing abatement is the unique Nash equilibrium under which the target is met voluntarily. However, this cutoff level also ensures that zero voluntary abatement is a Nash equilibrium. In addition, with this cutoff level the equilibrium under which the target is met voluntarily will not strictly dominate the equilibrium under which it is not. We show that all results still hold if the background threat instead takes the form of reducing government subsidies if a pre-specified environmental goal is not met.

Debate over Fair Value Accounting: Should we allow Politics to take an active role in setting accounting standards or should we trust that the SEC knows best?

In light of the recent economic downfall, there has been significant media coverage on the topic of fair value accounting. There are many critics of the accounting rule, who place blame on it for the destruction of billions of dollars in capital between financial institutions. Other commentators, however, see the rule as necessary and applaud its ability to bring the turmoil in the economy into the spotlight promptly so that it could be addressed effectively. This paper will begin by conducting a study of fair-value accounting from its inception in previous standards and then follow it through to Statement No. 157. I will then discuss the SEC’s most recent study of FAS157 and their decision as a result of the study.