Professional Behavior Under Incentives

So this has nothing to do with the economics of law firms, but it has a lot to do with professional behavior under incentive regimes.  Two economists at the University of Chicago have published a paper analyzing whether realtors (representing the seller of a home) work as hard on their client's behalf and extract as much value for a home as they do when they're working for themselves, selling their own home.

Have you already guessed or shall I tell you?  As competently summarized by The New York Times, in a study of nearly 100,000 home sales over ten years (1992—2002) outside Chicago, realtors selling their own homes typically kept it on the market 9.5 days longer and secured a median price 3.7% higher than a comparable home for sale by you or me.  Unprofessional?  A breach of duty to the client? 

Not so fast:  Because of the commission structure, there is truly little in it for the realtor to hold out very long for a better offer that may, of course, never come.  Although the standard 6% commission is, in my opinion, scandalously high and prima facie evidence that the National Association of Realtors constitutes a cartel, the seller's individual realtor only gets one-quarter of that 6%, or 1.5% (their half of the half that goes to their firm). 

So for a $500,000 home, the agent would get $7,500—say, for 10 days' work.  Now suppose they could add 3.7% to the price by working for another 10 (OK, 9.5) days.  The house would now sell for $518,500, and their net gain in income for doubling their efforts would be $277.50.  $7,500 or 10 days work or $7,777.50 for 20 days?  But when selling their own home they of course get to keep at least 95.5% of the incremental price (assuming 1.5% still goes to their own firm and 3.0% to the buyer's realty firm).

Now comes the important part:  Recall that this particular 10-year period spans from pre- to post-internet.  Pre-internet (1992—1995), the difference in favor of the realtor's own home was 14 more days on the market and a 4.9% higher price.  Post-internet (2000—2002), the numbers shrank to a 2.9% higher price and 2.5 more days on the market.  Thank you, realtor.com!

Something similar (see below) is happening to the mainstream media courtesy of the blogosphere:  The cartel's power is under siege from newly-widely distributed data. 

Don't you hate it when your information advantage starts to be eroded?