The Economics of Tenancy Rent Control
AbstractWe 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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Date of creation: Mar 2000
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- 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, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Production Analysis, and Firm Location - - - Housing Supply and Markets
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