A Behavioral Local Public Finance Perspective on the Renter’s Illusion Hypothesis
AbstractIn this paper we argue that renter’s illusion may not be a form of asymmetric information neither irrationality but rather a way to include in our economic analysis evidence that while homo oeconomicus aims to do a good job of making choices, he frequently is not able to do that. Taxpayers do not know the “objective” world but take decisions according to mental and often biased representations of “their” world. We develop a simple model where misperception plays a fundamental role in the behavior of renters and allows overcoming the dichotomy between rational and irrational renter's behavior. In the paper we also pursue the two complementary aims of introducing “cognitive limitation” into the theory of local public finance and of filling a gap in this literature regarding the lack of micro-foundations for the renter’s illusion hypothesis.
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Bibliographic InfoPaper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper1303.
Length: 27 pages
Date of creation: 18 Feb 2013
Date of revision:
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Web page: http://aysps.gsu.edu/isp/index.html
Renter effect; Renter’s illusion; Fiscal illusion; Behavioral local public finance.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-24 (All new papers)
- NEP-CBE-2013-05-24 (Cognitive & Behavioural Economics)
- NEP-EXP-2013-05-24 (Experimental Economics)
- NEP-HME-2013-05-24 (Heterodox Microeconomics)
- NEP-URE-2013-05-24 (Urban & Real Estate Economics)
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