RDP 2023-01: The Effect of Credit Constraints on Housing Prices: (Further) Evidence from a Survey Experiment 7. Robustness Checks

The amount of data trimmed and the treatment of WTPs exactly equal to the home value affects some of the estimates of the main results. Some trimming is required because the data are from a stated preference experiment and likely include outliers, either because of errors filling in the form or inattention. But the skew in the data appears to reflect genuine heterogeneity, so trimming too much will remove important variation that should inform the central estimate. The results presented above trim out 5 per cent of the data by the log change in WTP as in Fuster and Zafar (2021). Appendix C.2 shows that the estimate of the average change in WTP is quite sensitive to the trim depth but the estimate of the change in the marginal buyer's WTP is not.

In each experimental condition, some respondents give WTPs exactly equal to the home value. Translating this to a demand curve means there is a flat area of the demand curve at the market price, which means the supply curve could intersect the demand curve anywhere in that area (Figure B5). There are three reasons why I exclude some of these WTPs. First, some respondents may interpret the home value as a ceiling for a reasonable WTP. The respondent is told the amount that similar homes are selling for. If they assume they could buy an equivalent house for that price, it would not make sense to pay more for one particular house. Clearly not all respondents answer in this way, so removing any who do is useful. Second, the flat area in the demand curve means the supply curve, and thus the price change, is indeterminate and can lie in a relatively broad range. Third, including the flat area typically lowers the estimate of the change in marginal buyer WTP and has a negligible effect on the mean.

For the main results, I discard WTPs exactly equal to the home value in either experimental condition of the comparison. Appendix B.3 shows that different treatment of WTPs equal to the home value has little effect on the results of the collateral constraints experiment but does affect the results for the interest rate and inheritance experiments. The collateral constraint experiment has the largest, most reliable, and most statistically significant difference between the average WTP change, as reported in Fuster and Zafar (2021), and the change in the marginal buyer's WTP that determines the price change.