Entrepreneurial Innovation, Dynamic Transaction Costs and Institutional Change: The Case of Taiwan’s Sinyi Real Estate Inc.

Abstract

Land, housing and real estate are always deemed as special goods in economics due to their peculiar characteristics of limited supply and immobility. Transactions of land and real estate mean exchanges a bundle of rights associated with these properties (Harvey and Jowsey 2004). In the lens of Neoclassical economics, housing market is imperfect. Distortion in this market results in economic inefficiency. Market failures in the housing market as observed by Pigou (1920) and Samuelson (1954) are the problems of externality and public goods in which private interest influences property price. Under an unregulated market, self-interest may deteriorate housing environment. Government can solve these two problems by land use planning (Walker 1980, Klosterman 1985). Recent concerns have shifted the focus on another type of market failure, namely asymmetry or imperfect information problem, which causes rent-seeking behaviours such as moral hazards and adverse selection that distort market resource allocations. Government is also called for to correct this market failure by constraining rent-seeking behaviours (Cowen and Crampton 2002). The market failure due to asymmetry information is also common in the housing market. For example, sellers conceal some crucial information on housing defects during the transaction. Real estate developers and brokers use information advantage in associated land use regulations, prices and building materials to cheat customers for higher profit or commission. Therefore, in the view of neo-classical economics, the housing market exhibits market failure. As Jaffe (1996, p. 427) describes, “housing is deemed to be a special type of goods traded in unusual market, often resulting in relatively high transaction cost”.