What discount rate should be applied to social investments? It is standard to use the market interest rate, thereby respecting private preferences. We show that application of this "revealed preference" criterion rests on faith, not on logic. It is justified only if preferences over all choices,...

Economists do not have reliable measures of current house values, let alone housing returns. This ignorance underlies the illiquidity of mortgage-backed securities, which in turn feeds back to deepen the sub-prime crisis. Using a massive new data tape of housing transactions in L.A., we...

We construct a model of trade with matching frictions. The model provides a simple characterization for the joint proces of prices, sales and inventory. We compare the implications of the model to certain properties of housing markets. The model can generate the large price changes and the...