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The Welfare Implications of Rent Control: A Rent-Seeking Contest Approach

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  • Chang Yang-Ming

    ()
    (Kansas State University)

  • Sanders Shane D.

    ()
    (Nicholls State University)

Abstract

This paper uses a contest approach to characterize a probabilistic, non-price contest between potential consumers of rent-controlled apartments. The model extends upon the rent control model of Glaeser and Luttmer (2003) as well as the rent-seeking contributions of Hurley (1998), Dixit (1987), and Hirshleifer (1989) to consider the roles of chance and endogenously-chosen efforts in the allocation of rent-controlled apartments. Nash equilibrium effort levels for each consumer-type imply that the effort-inducing cost of rent control is greater than the misallocative cost. Further, misallocative costs are lower under the effort contest interpretation than under random allocation, as high willingness to pay consumers allocates more effort. The relationship between effort contest and misallocation influences the policy’s overall social cost.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 10 (2010)
Issue (Month): 1 (October)
Pages: 1-20

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Handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:95

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Cited by:
  1. Fleck, Robert K., 2014. "Can prohibitions on “price gouging” reduce deadweight losses?," International Review of Law and Economics, Elsevier, Elsevier, vol. 37(C), pages 100-107.

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