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The Misallocation of Housing Under Rent Control

  • Edward L. Glaeser
  • Erzo F. P. Luttmer

The standard analysis of price controls assumes that goods are efficiently allocated, even when there are shortages. But if shortages mean that goods are randomly allocated across the consumers that want them, the welfare costs from misallocation may be greater than the undersupply costs. We develop a framework to empirically test for misallocation. The methodology compares consumption patterns for demographic subgroups in rent-controlled and free-market places. We find that in New York City, which is rent-controlled, an economically and statistically significant fraction of apartments appears to be misallocated across demographic subgroups. (JEL C25, D12, D61, R20)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282803769206188
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 4 (September)
Pages: 1027-1046

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:4:p:1027-1046
Note: DOI: 10.1257/000282803769206188
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  1. Gyourko, Joseph & Linneman, Peter, 1989. "Equity and efficiency aspects of rent control: An empirical study of New York City," Journal of Urban Economics, Elsevier, vol. 26(1), pages 54-74, July.
  2. Barzel, Yoram, 1974. "A Theory of Rationing by Waiting," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 73-95, April.
  3. Edward L. Glaeser, 1996. "The Social Costs of Rent Control Revisited," NBER Working Papers 5441, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. Deacon, Robert T & Sonstelie, Jon, 1989. "The Welfare Costs of Rationing by Waiting," Economic Inquiry, Western Economic Association International, vol. 27(2), pages 179-96, April.
  7. Richard Arnott, 1995. "Time for Revisionism on Rent Control?," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 99-120, Winter.
  8. Heckman, James & Scheinkman, Jose, 1987. "The Importance of Bundling in a Gorman-Lancaster Model of Earnings," Review of Economic Studies, Wiley Blackwell, vol. 54(2), pages 243-55, April.
  9. Olsen, Edgar O, 1972. "An Econometric Analysis of Rent Control," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1081-1100, Nov.-Dec..
  10. Cheung, Steven N S, 1974. "A Theory of Price Control," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 53-71, April.
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