Endowment Effects of Shared Ownership: Evidence from Hong Kong

Abstract

ABSTRACT The endowment effect is a behavioral bias; postulating people demand more to part with an object they own than they would offer to acquire the same object owned by others. Recent experimental research, however, suggests that this effect applies to consumption goods rather than exchange goods. Given that housing is a mix of consumption and exchange goods, it presents a unique opportunity to examine whether the effect exists in the real world through a quasi-experiment. Based on a policy change that relaxed the resale constraints of shared ownership housing in Hong Kong, we found that more constrained homeowners were more likely to sell their homes compared to those with fewer constraints when granted the right to exchange, all other factors affecting liquidity being held constant. This marks the first field study revealing that the endowment effect diminishes when a good enhances its exchange nature, such as being given an exchange right.