Imperfect information and entrepreneurs' choice on provision of house fittings

Author:Rita Yi Man Li
Position:Lecturer, Economic and Finances, Hong Kong 'Shue Yan' University, Hong Kong
Pages:269-276
SUMMARY

Entrepreneurs have always been regarded as talented individuals who can bear the risk of running a business. They can reap a huge profit in return for their hard work. In mainland China, most housing entrepreneurs do not provide housing with fittings. There are no floor or wall fittings, kitchen appliances or bathroom fittings. Home buyers only receive bare units when developers finish their job. ... (see full summary)

 
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Rita Yi Man Li
269
LESIJ NO. XVIII, VOL. 1/2011
IMPERFECT INFORMATION AND
ENTREPRENEURS’ CHOICE ON PROVISION OF HOUSE FITTINGS
Rita Yi Man LI
Abstract
Entrepreneurs have always been regarded as talented individuals who can bear the risk of
running a business. They can reap a huge profit in return for their hard work. In mainland China,
most housing entrepreneurs do not provide housing with fittings. There are no floor or wall
fittings, kitchen appliances or bathroom fittings. Home buyers only receive bare units when
developers finish their job. What is the motive behind this choice? This paper analyses the motive
based on imperfect information and entrepreneurs’ risk-averse behaviour.
Keywords: imperfect information, entrepreneur, house fittings
“[I]nformation is random and miscellaneous. We are flooded
by messages from the instant everywhere in
excruciating profusion... The latest information on anything
and everything is collected, diffused, received, stored,
and retrieved before anyone can discover
whether the facts have meaning” (Boorstin, 1979)
1. Introduction
An entrepreneur combines the resources of land, capital and labour to produce a good. He is
the major driving force behind production of goods. As there is no guarantee of making a profit
and imperfect information exists in our business world, the entrepreneur assumes the role of risk
bearer. At the same time, like other business persons, he cannot accept a job that has too high a
risk of loss (Brue et al., 2009).
Running a real estate business is risky; it requires heavy capital investment in land,
professional training and recruitment. Nevertheless, this huge expenditure does not guarantee a
great return, and it is possible to suffer a substantial loss if the entrepreneur makes a wrong
decision. Provision of home fittings is one of the risks that the housing entrepreneur faces. Some
home buyers may dislike the fittings and thus decide not to purchase the home. In Hong Kong,
land supply is scarce, but demand is huge (7 million people live in a small city with a hilly
landscape). Land price occupies a relatively large proportion of the costs of dwelling production.
Provision of a wash basin, towel ring, water closet, and other fittings only uses a small proportion
of the total costs of construction. Entrepreneurs thus focus on land purchases more than provision
of fittings. The risk of installing fittings that do not suit the taste of customers is not very high.
Furthermore, many developers have run their business for many years and have accumulated
sufficient knowledge on buyers’ taste. Provision of fittings to customers is common. Yet, in
mainland China, especially in areas of low land costs, costs of fittings have become relatively
high. The risk of supplying fittings that prospective owners dislike is higher. Many entrepreneurs

Lecturer, Economic and Finances, Hong Kong “Shue Yan” University, Hong Kong (e-mail:
ritarec1@yahoo.com.hk).

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