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Alas, my home is my castle: On the cost of house ownership as a screening device

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  • Arnold, Lutz G.
  • Babl, Andreas

Abstract

This paper analyzes a model in which housing tenure choice serves as a means of screening households with different utilization rates. If the proportion of low-utilization types is small, there is a separating equilibrium at which tenure choice acts as a screening device: consistent with empirical evidence, low-utilization households buy a house, while high-utilization types rent. Otherwise, there is a pooling equilibrium. The reason why, contrary to standard screening models, a pooling equilibrium possibly exists is indivisibility of home ownership, which makes it a very costly screening device. Introducing partial ownership restores the standard results: non-existence of a pooling equilibrium and possible non-existence of equilibrium.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 81 (2014)
Issue (Month): C ()
Pages: 57-64

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Handle: RePEc:eee:juecon:v:81:y:2014:i:c:p:57-64

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Housing; Tenure choice; Asymmetric information; Screening;

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References

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