Excessive Rents and Non-Compliance with Price Ceilings
Standard microeconomic theory warns us that price controls create incentives for non compliance. In this paper we analyze the suppliers' compliance with price ceilings decisions in a competitive sector, focusing on rent controls. We conclude that, first, forcing a non-complying landlord to simply return all payments in excess of the maximum allowed amount constitutes an implicit, nevertheless effective, real penalty. Second, instead of bringing the price back to its free market level, black market results to some implicitly defined ceiling, above the legal one. Third, as the gap between the ceiling and the free market price increases, the efficiency of fixed fines relative to that of proportional fines is reduced.
Volume (Year): 5 (2007)
Issue (Month): 2 ()
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- Lee, Dwight R, 1978. "Price Controls, Binding Constraints, and Intertemporal Economic Decision Making," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 293-301, April.
- Thies, Clifford F, 1993. "Rent Control with Rationing by Search Costs: A Note," The Journal of Real Estate Finance and Economics, Springer, vol. 7(2), pages 159-165, September. Full references (including those not matched with items on IDEAS)
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