Does owners’ purchase price affect rent offered? Experimental evidence

Shinichi Hirota, Kumi Suzuki-Löffelholz and Daisuke Udagawa

Journal of Behavioral and Experimental Finance, 2020, vol. 25, issue C

Abstract: In standard economic theory, rent determines real estate price; however, we hypothesize that in behavioral economics, real estate price affects the rent offered. We conduct laboratory experiments where a real estate market opens before a rental market and examine whether owners’ purchase price influences their rent-offering behavior. We find that the higher the purchase price, the higher the rent offered. We also confirm that higher contracted rents lead to higher prices in subsequent real estate markets. This suggests a positive interaction between real estate prices and rents in the real economy, which can explain the acceleration of price increases often observed in real estate markets.

Keywords: Real estate prices; Rents; Laboratory experiment; Behavioral economics; Sunk cost (search for similar items in EconPapers)
JEL-codes: C91 D03 G02 G12 R30 R31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:25:y:2020:i:c:s221463501830282x

DOI: 10.1016/j.jbef.2019.100260

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