Contractual Freedom Versus Tenancy Law

Patrick Schmitz

No 22104, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study a two-period principal-agent model of rental housing in which a landlord (principal) offers a contract to a tenant (agent). After the first period, a cost shock may occur that increases the landlord's cost of providing the apartment in the second period. Two scenarios are compared. In one scenario, there is full contractual freedom, while in the other scenario, there is a tenancy law requiring the landlord to continue renting in the second period if the apartment was rented in the first period. Under symmetric information, gains from trade in the tenancy law regime can never exceed those under contractual freedom. However, we show that when the tenant has private information, the tenancy law can lead to strictly higher gains from trade.

Keywords: Asymmetric information; freedom of contract; tenancy law; eviction protection; principal-agent theory (search for similar items in EconPapers)
JEL-codes: D82 D86 K25 R31 R38 (search for similar items in EconPapers)
Date: 2026-10
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