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Foreign buyers, price dispersion and local buyers eviction in bargaining markets

Sauveur Giannoni, Olivier Beaumais, Caroline Tafani

Abstract

The presence of foreign buyers in land and housing markets has become a major concern for many regions in the world, sometimes seen as leading to the eviction of local (domestic) buyers from the market. We argue that the existence of the non-local buyer premium is a driving force behind the local buyer eviction phenomenon. To account for this phenomenon, we built a stylized static search and bargaining model with one type of seller and two types of buyers, local and non-local. We show that the market is in general characterized by the coexistence of two different selling prices, a high price paid by non-local buyers and a low price paid by local ones. Yet, if the price premium exceeds a given threshold, which we call the maximum sustainable price dispersion cut-point, no seller will be willing to deal with a local buyer at a low price anymore. To illustrate our theoretical results, we use a data set of more than 4,800 observations on the seaside farmland market of Corsica between 1998-2008. Controlling for land characteristics and potential endogeneity issues, a huge non-local premium of roughly e16 per square meter is found.

Working Paper TerRA n°05