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The Impact of Rent Controls in Non-Walrasian Markets: An Agent-Based Modeling Approach

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We use agent-based models to consider rent ceilings in non-Walrasian housing markets, where bargaining between landlord and tenant leads to exchange at a range of prices. In the non-Walrasian setting agents who would be extramarginal in the Walrasian setting frequently are successful in renting, and actually account for a significant share of the units rented. This has several implications. First, rent ceilings above the Walrasian equilibrium price (WEP) can affect the market outcome. Second, rent ceilings that reduce the number of units rented do not necessarily reduce total market surplus. Finally, the distributional impact of rent controls differs from the Walrasian setting.

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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2004-05.

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Length: 57 pages
Date of creation: Dec 2004
Date of revision: May 2005
Publication status: published in Journal of Regional Science, August 2006, 455-492.
Handle: RePEc:wil:wileco:2004-05

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  1. Edward L. Glaeser, 1996. "The Social Costs of Rent Control Revisited," NBER Working Papers 5441, National Bureau of Economic Research, Inc.
  2. Dhananjay (Dan) K. Gode & Shyam Sunder, 2000. "Double Auction Dynamics: Structural Effects Of Non-Binding Price Controls," Yale School of Management Working Papers ysm1, Yale School of Management.
  3. Edward L. Glaeser & Erzo F. P. Luttmer, 2003. "The Misallocation of Housing Under Rent Control," American Economic Review, American Economic Association, vol. 93(4), pages 1027-1046, September.
  4. Jakob Roland Munch & Michael Svarer, . "Rent Control and Tenancy Duration," Economics Working Papers 2001-7, School of Economics and Management, University of Aarhus.
  5. Fershtman, C. & Fishman, A., 1991. "The "Perverse" Effects of Wage and Price Controls in Search Markets," Papers 11-91, Tel Aviv.
  6. Michael Rauh, . "Heterogeneous Beliefs, Price Dispersion, and Welfare-Improving Price Controls," Economics and Finance Discussion Papers 97-03, Economics and Finance Section, School of Social Sciences, Brunel University.
  7. Sah, Raaj Kumar, 1987. "Queues, Rations, and Market: Comparisons of Outcomes for the Poor and the Rich," American Economic Review, American Economic Association, vol. 77(1), pages 69-77, March.
  8. Rauh, Michael T., 2004. "Wage and price controls in the equilibrium sequential search model," European Economic Review, Elsevier, vol. 48(6), pages 1287-1300, December.
  9. Gode, Dhananjay K & Sunder, Shyam, 1997. "What Makes Markets Allocationally Efficient?," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 603-30, May.
  10. Suen, Wing, 1989. "Rationing and Rent Dissipation in the Presence of Heterogeneous Individuals," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1384-94, December.
  11. Malpezzi, Stephen & Maclennan, Duncan, 2001. "The Long-Run Price Elasticity of Supply of New Residential Construction in the United States and the United Kingdom," Journal of Housing Economics, Elsevier, vol. 10(3), pages 278-306, September.
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Cited by:
  1. John Mc Breen & Florence Goffette-Nagot & Pablo Jensen, 2011. "Information and Search on the Housing Market: An Agent-based Model," ERSA conference papers ersa11p1395, European Regional Science Association.
  2. Robert Axtell, 2007. "What economic agents do: How cognition and interaction lead to emergence and complexity," The Review of Austrian Economics, Springer, vol. 20(2), pages 105-122, September.

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