A Study of the Brokerage Cost Allocation in a Rental Housing Market with Asymmetric Information

Danny Ben-Shahar

The Journal of Real Estate Finance and Economics, 2001, vol. 23, issue 1, 77-94

Abstract: We analyze the brokerage service cost allocation in the rental housing market. We explain the alleged inconsistent phenomenon of landlords only occasionally requiring tenants to incur mediation cost. We show that when asymmetric information is introduced, under which tenants' tenure horizon is unobservable to landlords, a separating equilibrium may be attained, in which the length of the tenant's tenure horizon is directly related to his share in the brokerage commission. Finally, we empirically examine and confirm a set of the model's assumptions and derivations within the rental housing-market framework. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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