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Alas, my home is my castle: On the cost of house ownership as a screening device

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  • Arnold, Lutz G.
  • Babl, Andreas

Abstract

This paper analyzes a model in which housing tenure choice serves as a means of screening households with different utilization rates. If the proportion of low-utilization types is small, there is a separating equilibrium at which tenure choice acts as a screening device: consistent with empirical evidence, low-utilization households buy a house, while high-utilization types rent. Otherwise, there is a pooling equilibrium. The reason why, contrary to standard screening models, a pooling equilibrium possibly exists is indivisibility of home ownership, which makes it a very costly screening device. Introducing partial ownership restores the standard results: non-existence of a pooling equilibrium and possible non-existence of equilibrium.

Suggested Citation

  • Arnold, Lutz G. & Babl, Andreas, 2014. "Alas, my home is my castle: On the cost of house ownership as a screening device," Journal of Urban Economics, Elsevier, vol. 81(C), pages 57-64.
  • Handle: RePEc:eee:juecon:v:81:y:2014:i:c:p:57-64
    DOI: 10.1016/j.jue.2014.02.004
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    Keywords

    Housing; Tenure choice; Asymmetric information; Screening;

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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