The Economics of Tenancy Rent Control

Kaushik Basu and Patrick Emerson ()

Working Papers from Cornell University, Center for Analytic Economics

Abstract: We consider a rent control regime where rent increases on, and eviction of, a sitting tenant are not allowed. However when an apartment becomes vacant the landlord is free to negotiate a new rent. Under such a regime, if inflation exists, landlords prefer to rent to short-staying tenants. Since departure-date-contingent contracts are forbidden and a landlord cannot tell whether a tenant is a short-stayer, an adverse selection problem arises. In this case, the equilibrium is Pareto inefficient. We show that when tenant types are determined endogenously, multiple equilibria can arise where one equilibrium is Pareto dominated by the other equilibrium. The abolition of the rent control regime, can not only shift the equilibrium out of this inferior outcome, but also result in an across-the-board lowering of rents.

JEL-codes: D40 K10 L51 R31 (search for similar items in EconPapers)
Date: 2000-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Journal Article: The Economics of Tenancy Rent Control (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:corcae:00-04

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