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Efficiency Pricing, Tenancy Rent Control and Monopolistic Landlords
Author(s) -
Basu Kaushik,
Emerson Patrick M.
Publication year - 2003
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/1468-0335.t01-1-00280
Subject(s) - leasehold estate , economic rent , economics , monopolistic competition , adverse selection , microeconomics , rent seeking , monopoly , political science , law , politics
This paper presents a model of ‘tenancy rent control’ where rent increases on, and evictions of, sitting tenants are prohibited but nominal rents for new tenants are unrestricted. If there is any inflation, landlords prefer to take short‐staying tenants. If there is no way for landlords to tell a tenant's type, an adverse selection problem arises. If landlords have monoply power, then they may prefer not to raise the rent even when there is excess demand for housing. These ‘efficiency rents’ show that tenancy rent control can give rise to equilibria that look as if there were a flat ceiling on rents.