Adverse selection versus hold up: Tenure choice, tenancy protection and equilibrium in housing markets

Hiroyuki Seshimo

Regional Science and Urban Economics, 2014, vol. 48, issue C, 39-55

Abstract: In this paper, we consider the tenure choice problem under different schemes of legal tenancy protection. We analyze the interaction between the rental and resale housing markets under conditions of bilateral asymmetric information regarding housing quality and the type of residents. Home ownership is associated with a trade-off between the loss caused by asymmetric information and rent exploitation by landlords in a holdup problem. With perfect protection for tenants, adverse selection in the resale housing market becomes problematic, and the market disappears. Conversely, the absence of tenancy protection mitigates adverse selection in the resale housing market and leads to a separating equilibrium.

Keywords: Tenure choice; Adverse selection; Right of residence; Tenant protection (search for similar items in EconPapers)
JEL-codes: K11 K12 R21 R31 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:48:y:2014:i:c:p:39-55

DOI: 10.1016/j.regsciurbeco.2014.04.002

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