Do mandatory disclosures squeeze the lemons? The case of housing markets in India
Vaidehi Tandel, Sahil Gandhi, Anupam Nanda, Nandini Agnihotri
What is the impact of mandatory disclosures of quality on market outcomes in a large developing country? Does impact differ across sub-markets and income groups? We answer these questions in the context of housing markets in India where information asymmetry between homebuyers and developers is high and litigation against housing projects is common. We find that a 2017 reform mandating developers to make litigation details public led to a decline in prices of litigated housing units (lemons). The decline in prices was limited to the non-luxury sub-market and there was no impact in the luxury sub-market. We discuss possible mechanisms for the divergent results across sub-markets. We find evidence for the role of household resources in acquiring private information. Dissemination of information through media coverage of litigated projects does not explain the differential results. We rule out alternative explanations, such as severity of litigation in terms of number of disputes and type of courts, that could affect sub-markets differently. We provide support for disclosure laws in developing countries to reduce market inefficiencies and unequal access to information.
Event: World Bank Land Conference 2024 - Washington
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