Alas, my home is my castle: On the cost of house ownership as a screening device

Lutz Arnold () and Andreas Babl

Journal of Urban Economics, 2014, vol. 81, issue C, 57-64

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 equilibrium.

Keywords: Housing; Tenure choice; Asymmetric information; Screening (search for similar items in EconPapers)
JEL-codes: D82 R31 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:81:y:2014:i:c:p:57-64

DOI: 10.1016/j.jue.2014.02.004

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