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Housing Rental Contracts and Adverse Selection with an Application to the Rent‐Own Decision

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  • Thomas J. Miceli

Abstract

A model of rental housing is developed in which landlords cannot observe the utilization rate of their tenants. As a result of this imperfect information, an adverse selection problem exists where high utilization households have an incentive to conceal their type in order to obtain more favorable contract terms. Consequently, the market equilibrium must satisfy a self‐selection constraint, which imposes certain restrictions on the set of contracts that will be offered by landlords. These restrictions are examined in detail, and their implications for a household's decision to rent or own its housing are derived.

Suggested Citation

  • Thomas J. Miceli, 1989. "Housing Rental Contracts and Adverse Selection with an Application to the Rent‐Own Decision," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 403-421, December.
    • Handle: RePEc:bla:reesec:v:17:y:1989:i:4:p:403-421
    DOI: 10.1111/1540-6229.00500
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    References listed on IDEAS

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    Cited by:

    1. John R. Miron, 1995. "Private Rental Housing: The Canadian Experience," Urban Studies, Urban Studies Journal Limited, vol. 32(3), pages 579-604, April.
    2. Miceli, Thomas J. & Sirmans, C. F., 1999. "Tenant Turnover, Rental Contracts, and Self-Selection," Journal of Housing Economics, Elsevier, vol. 8(4), pages 301-311, December.
    3. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    4. Ben-Shahar, Danny, 1998. "On the Optimality of the Hybrid Tenure Mode," Journal of Housing Economics, Elsevier, vol. 7(1), pages 69-92, March.
    5. Thomas J. Miceli, 1992. "Habitability Laws for Rental Housing: The Impact of Tenant Inputs," Urban Studies, Urban Studies Journal Limited, vol. 29(1), pages 15-24, February.
    6. Lutz G. Arnold & Andreas Babl, 2013. "Alas, My Home is My Castle: The Excessive Screening Cost of Buying a House," Working Papers 134, Bavarian Graduate Program in Economics (BGPE).
    7. Forgionne, G. A., 1996. "Forecasting army housing supply with a DSS-delivered econometric model," Omega, Elsevier, vol. 24(5), pages 561-576, October.
    8. Seshimo, Hiroyuki, 2014. "Adverse selection versus hold up: Tenure choice, tenancy protection and equilibrium in housing markets," Regional Science and Urban Economics, Elsevier, vol. 48(C), pages 39-55.
    9. Arnold, Lutz G. & Babl, Andreas, 2014. "Alas, my home is my castle: On the cost of house ownership as a screening device," Journal of Urban Economics, Elsevier, vol. 81(C), pages 57-64.

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