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The Economics of Tenancy Rent Control

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Author Info
Basu, Kaushik (Cornell U)
Emerson, Patrick M. (Cornell U)
Abstract

We consider a rent control regime where rent increases on, and eviction of, a sitting tenant are not allowed. However when an apartment becomes vacant the landlord is free to negotiate a new rent. Under such a regime, if inflation exists, landlords prefer to rent to short-staying tenants. Since departure-date-contingent contracts are forbidden and a landlord cannot tell whether a tenant is a short-stayer, an adverse selection problem arises. In this case, the equilibrium is Pareto inefficient. We show that when tenant types are determined endogenously, multiple equilibria can arise where one equilibrium is Pareto dominated by the other equilibrium. The abolition of the rent control regime, can not only shift the equilibrium out of this inferior outcome, but also result in an across-the-board lowering of rents.

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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 00-04.

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Date of creation: Mar 2000
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Handle: RePEc:ecl:corcae:00-04

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Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
R31 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Housing Supply and Markets

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  1. Guasch, J. Luis & Marshall, Robert C., 1987. "A theoretical and empirical analysis of the length of residency discount in the rental housing market," Journal of Urban Economics, Elsevier, vol. 22(3), pages 291-311, November. [Downloadable!] (restricted)
  2. Raymon, Neil, 1983. "Price ceilings in competitive markets with variable quality," Journal of Public Economics, Elsevier, vol. 22(2), pages 257-264, November. [Downloadable!] (restricted)
  3. Arnott, Richard, 1995. "Time for Revisionism on Rent Control?," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 99-120, Winter. [Downloadable!] (restricted)
  4. Epple, Dennis, 1998. "Rent control with reputation: theory and evidence," Regional Science and Urban Economics, Elsevier, vol. 28(6), pages 679-710, November. [Downloadable!] (restricted)
  5. Nagy, John, 1997. "Do Vacancy Decontrol Provisions Undo Rent Control?," Journal of Urban Economics, Elsevier, vol. 42(1), pages 64-78, July. [Downloadable!] (restricted)
  6. Smith, Lawrence B & Rosen, Kenneth T & Fallis, George, 1988. "Recent Developments in Economic Models of Housing Markets," Journal of Economic Literature, American Economic Association, vol. 26(1), pages 29-64, March. [Downloadable!] (restricted)
  7. Nagy John, 1995. "Increased Duration and Sample Attrition in New York City's Rent Controlled Sector," Journal of Urban Economics, Elsevier, vol. 38(2), pages 127-137, September. [Downloadable!] (restricted)
  8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  9. Hubert, Franz, 1995. "Contracting with costly tenants," Regional Science and Urban Economics, Elsevier, vol. 25(5), pages 631-654, October. [Downloadable!] (restricted)
  10. Basu, Kaushik, 1989. "Technological Stagnation, Tenurial Laws, and Adverse Selection," American Economic Review, American Economic Association, vol. 79(1), pages 251-55, March. [Downloadable!] (restricted)
  11. Ault Richard W. & Jackson John D. & Saba Richard P., 1994. "The Effect of Long-Term Rent Control on Tenant Mobility," Journal of Urban Economics, Elsevier, vol. 35(2), pages 140-158, March. [Downloadable!] (restricted)
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  1. Robert Poole & Randal Verbrugge, 2007. "Explaining the Rent-OER Inflation Divergence, 1999-2006," Working Papers 410, U.S. Bureau of Labor Statistics. [Downloadable!]
  2. Jin, Songqing & Deininger, Klaus & Nagarajan, Hari, 2006. "Equity and efficiency impacts of rural land rental restrictions: Evidence from India," 2006 Annual meeting, July 23-26, Long Beach, CA 21305, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  3. Richard Arnott & Elizaveta Shevyakhova, 2008. "Tenancy Rent Control And Credible Commitment In Maintenance," Working Papers 200812, University of California at Riverside, Department of Economics, revised Sep 2008. [Downloadable!]
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  4. Alastair McFarlane, 2001. "Rent stabilization and the long-run supply of housing," Urban/Regional 0109001, EconWPA. [Downloadable!]
  5. Lawrence B. Smith, 2003. "Intertenancy Rent Decontrol in Ontario," Canadian Public Policy, University of Toronto Press, vol. 29(2), pages 213-225, June. [Downloadable!] (restricted)
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