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The Impact of Rent Controls in Non-Walrasian Markets: An Agent-Based Modeling Approach

We use agent-based models to consider rent ceilings in non-Walrasian housing markets, where bargaining between landlord and tenant leads to exchange at a range of prices. In the non-Walrasian setting agents who would be extramarginal in the Walrasian setting frequently are successful in renting, and actually account for a significant share of the units rented. This has several implications. First, rent ceilings above the Walrasian equilibrium price (WEP) can affect the market outcome. Second, rent ceilings that reduce the number of units rented do not necessarily reduce total market surplus. Finally, the distributional impact of rent controls differs from the Walrasian setting.

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File URL: http://web.williams.edu/Economics/wp/bradburdsheppardNonWalrasianRentControlsFinalVersion.pdf
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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2004-05.

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Length: 57 pages
Date of creation: Dec 2004
Date of revision: May 2005
Publication status: published in Journal of Regional Science, August 2006, 455-492.
Handle: RePEc:wil:wileco:2004-05
Contact details of provider: Postal: Williamstown, MA 01267
Phone: 413 597 2476
Fax: 413 597 4045
Web page: http://econ.williams.edu
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  1. Malpezzi, Stephen & Maclennan, Duncan, 2001. "The Long-Run Price Elasticity of Supply of New Residential Construction in the United States and the United Kingdom," Journal of Housing Economics, Elsevier, vol. 10(3), pages 278-306, September.
  2. Fershtman, C. & Fishman, A., 1991. "The "Perverse" Effects of Wage and Price Controls in Search Markets," Papers 11-91, Tel Aviv.
  3. Edward L. Glaeser, 1996. "The Social Costs of Rent Control Revisited," NBER Working Papers 5441, National Bureau of Economic Research, Inc.
  4. Gode, Dhananjay (Dan) K. & Sunder, Shyam, 2004. "Double auction dynamics: structural effects of non-binding price controls," Journal of Economic Dynamics and Control, Elsevier, vol. 28(9), pages 1707-1731, July.
  5. Sah, Raaj Kumar, 1987. "Queues, Rations, and Market: Comparisons of Outcomes for the Poor and the Rich," American Economic Review, American Economic Association, vol. 77(1), pages 69-77, March.
  6. Michael T. Rauh, 2001. "Heterogeneous beliefs, price dispersion, and welfare-improving price controls," Economic Theory, Springer, vol. 18(3), pages 577-603.
  7. Jakob Roland Munch & Michael Svarer, . "Rent Control and Tenancy Duration," Economics Working Papers 2001-7, School of Economics and Management, University of Aarhus.
  8. Rauh, Michael T., 2004. "Wage and price controls in the equilibrium sequential search model," European Economic Review, Elsevier, vol. 48(6), pages 1287-1300, December.
  9. Edward L. Glaeser & Erzo F. P. Luttmer, 1997. "The Misallocation of Housing Under Rent Control," NBER Working Papers 6220, National Bureau of Economic Research, Inc.
  10. 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.
  11. Gode, Dhananjay K & Sunder, Shyam, 1997. "What Makes Markets Allocationally Efficient?," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 603-30, May.
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