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Licensing And The Informal Sector In Rental Housing Markets: Theory And Evidence

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  • Andrew Samuel
  • Jeremy Schwartz
  • Kerry Tan

Abstract

Although the goal of licensing is to ensure the quality of services, it can also induce firms to operate informally or exit altogether. This paper examines licensing in the rental housing market by developing a model that indicates licensing's impact on the size of the underground rental market, the number of vacancies, and homelessness are ambiguous. As a result, we calibrate the model using a unique dataset from Baltimore, which allows us to directly observe underground rentals and vacancies. Our calibrations show that licensing may have a modest impact on rents, while increasing quality more substantially. (JEL L15, K42, D78, E26, O17)

Suggested Citation

  • Andrew Samuel & Jeremy Schwartz & Kerry Tan, 2021. "Licensing And The Informal Sector In Rental Housing Markets: Theory And Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 39(2), pages 325-347, April.
    • Handle: RePEc:bla:coecpo:v:39:y:2021:i:2:p:325-347
    DOI: 10.1111/coep.12501
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    References listed on IDEAS

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    6. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-1346, December.
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    More about this item

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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