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Owner Tenancy as Credible Commitment under Uncertainty

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  • John L. Glascock
  • C. F. Sirmans
  • Geoffrey K. Turnbull

Abstract

How do landlords provide credible signals to tenants that they will maintainthe building when the needed upkeep over the contract period is uncertain at the time that rental decisions are made? In this paper, we develop a model of credible commitment under uncertainty wherein owner tenancy serves as the commitment signal to the market. In comparing completely tenant‐occupied (absentee landlord) to partially owner‐occupied buildings, the model predicts that in the latter case, the equilibrium rent is higher. We test this prediction using rental data for a sample of office buildings, some of which are completely tenant‐occupied while others are partially owner‐occupied. The results indicate that, as predicted by the model, rents are significantly higher when landlords can signal a commitment to high‐performance standards.

Suggested Citation

  • John L. Glascock & C. F. Sirmans & Geoffrey K. Turnbull, 1993. "Owner Tenancy as Credible Commitment under Uncertainty," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(1), pages 69-82, March.
    • Handle: RePEc:bla:reesec:v:21:y:1993:i:1:p:69-82
    DOI: 10.1111/1540-6229.00599
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    References listed on IDEAS

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    Cited by:

    1. Henry Munneke & Joseph Ooi & C. Sirmans & Geoffrey Turnbull, 2015. "Real Estate Agents, House Prices, and Liquidity," The Journal of Real Estate Finance and Economics, Springer, vol. 50(1), pages 1-33, January.
    2. Navarro, Ignacio & Turnbull, Geoffrey K., 2010. "Antichresis leases: Theory and empirical evidence from the Bolivian experience," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 33-44, January.
    3. Charles-Olivier Amédée-Manesme & Francois Des Rosiers & Philippe Grégoire, 2017. "Commercial leases, terms and options in the light of game theory," ERES eres2017_175, European Real Estate Society (ERES).
    4. Arvydas Jadevicius & Brian Sloan & Andrew Brown, 2012. "Examination of property forecasting models - accuracy and its improvement through combination forecasting," ERES eres2012_082, European Real Estate Society (ERES).

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