Testing for asymmetric information in the viager market∗

This paper tests for the presence of asymmetric information in the viager real estate market. Sellers who use the viager mechanism are entitled to stay in their property until death. Buyers have to make a down payment at the purchase date, and pay regular sums of money until the seller dies. Thanks to a no arbitrage condition (buyers must be indifferent between purchasing on the standard and viager market), we identify the type of the seller as a specific sum of death probabilities. By comparing these sums with analogously defined national-level sums we can check whether viager sellers have the same survival distribution as individuals in the population. We then develop, estimate and test a symmetric information model of viager sales. The model also encompasses a donation motive. Notarial data are used on transactions in Paris between 1992 and 2001. We find that sellers do not have the same survival distributions as comparable persons in the population, and hence they have information about their death probabilities. The hypothesis that information is symmetric is accepted and there is no evidence of asymmetric information in the market. This highlights that this information is no longer private when the contract is signed. Finally, we are able to recover the probability that a seller donate a fraction of the down payment. ∗We are grateful to Gary Becker, Pierre-André Chiappori, Gabrielle Demange, Alexis Direr, Christian Gollier, Sébastien Lecocq, Steven Levitt, André Masson, seminar participants at CESifo Munich, GREQAM Marseille, INRA-IDEI Toulouse, INRA-LEA Paris, Tinbergen Institute Amsterdam, the University of Chicago, the University of Montpellier, and the Utrecht School of Economics, and attendees at the 2009 North American Winter Meeting of the Econometric Society for their helpful comments and suggestions. Thanks also to Bruno Legasse for explaining many of the practical aspects of the viager market. Philippe Février also thanks the hospitality of the University of Chicago where part of this project was written. †CREST-LEI, 15 Boulevard Gabriel Péri, 92245 Malakoff, France. Email: [email protected]. ‡CREST-LEI, 15 Boulevard Gabriel Péri, 92245 Malakoff, France. Email: [email protected]. §ERMES-CNRS and CREST-LEI, 26, rue des Fossés Saint-Jacques, 75005 Paris, France. Email: [email protected].