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A search model of rental markets: Who should pay the commission?

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  • Niedermayer, Andras
  • Wang, Chengsi

Abstract

We develop a dynamic search equilibrium model of rental markets with brokerage fees. An endogenous mass of landlords and tenants is active in the search market. While the mass of entering tenants is exogenous, the mass of entering landlords is endogenously determined by the rate at which apartments become vacant. Brokerage fees paid by tenants are used as a device to screen short term and long term tenants. We analyze a policy that requires fees to be paid by landlords. Such a policy decreases efficiency by preventing efficient screening, but also increases turnover and hence efficiency in the search market. We further provide empirically testable implications of our theory.

Suggested Citation

  • Niedermayer, Andras & Wang, Chengsi, 2018. "A search model of rental markets: Who should pay the commission?," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 214-235.
    • Handle: RePEc:eee:indorg:v:58:y:2018:i:c:p:214-235
    DOI: 10.1016/j.ijindorg.2017.06.002
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    Cited by:

    1. Pasquini, Ricardo A., 2021. "Effects of regulating the brokerage commission in the rental market: Evidence from Buenos Aires," Journal of Housing Economics, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Search; Dynamic random matching; Brokerage fees; Appointment principle;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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