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RENT: Notes on Efficiency Pricing, Rent Control and Monopolistic Landlords


  • Basu, Kaushik

    (Cornell U)

  • Emerson, Patrick M.

    (Cornell U and U of Colorado, Denver)


We consider a model of 'tenancy rent control' where landlords are not allowed to raise the rent on sitting tenants nor to evict them, though they are free to set the nominal rent when taking on a new tenant. If there is any inflation in the economy, landlords prefer to take shortstaying tenants. Assuming that there is no way for landlords to tell a tenant's type, an adverse selection problem arises. If in this context, landlords have monopoly power--which, as we argue, is indeed pervasive--then the housing market equilibria can exhibit some unexpected properties. Most strikingly, landlords may prefer not to raise the rent even when there is excess demand for housing. Such rents are labeled "efficiency rents" in this paper and their existence shows that tenancy rent control can give rise to equilibria which look as it there were traditional rent control in which the rent of each unit has a flat ceiling. In other words, tenancy rent control may not achieve the flexibility, which it was expected to impart, to the system of traditional rent control.

Suggested Citation

  • Basu, Kaushik & Emerson, Patrick M., 2000. "RENT: Notes on Efficiency Pricing, Rent Control and Monopolistic Landlords," Working Papers 00-06, Cornell University, Center for Analytic Economics.
  • Handle: RePEc:ecl:corcae:00-06

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    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets


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