Alas, My Home is My Castle: The Excessive Screening Cost of Buying a House

Lutz Arnold () and Andreas Babl

No 134, Working Papers from Bavarian Graduate Program in Economics (BGPE)

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 an equilibrium. The same mechanisms are at work in a corporate finance context.

Keywords: housing; tenure choice; asymmetric information; screening (search for similar items in EconPapers)
JEL-codes: D82 R31 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013-03
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://bgpe.cms.rrze.uni-erlangen.de/files/2023/0 ... f-Buying-a-House.pdf First version, 2013 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bav:wpaper:134_arnoldbabl

Access Statistics for this paper

More papers in Working Papers from Bavarian Graduate Program in Economics (BGPE) Contact information at EDIRC.
Bibliographic data for series maintained by Anton Barabasch ().