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Licensing And The Informal Sector In Rental Housing Markets: Theory And Evidence

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  • Andrew Samuel
  • Jeremy Schwartz
  • Kerry Tan

Abstract

Although the goal of licensing is to ensure the quality of services, it can also induce firms to operate informally or exit altogether. This paper examines licensing in the rental housing market by developing a model that indicates licensing's impact on the size of the underground rental market, the number of vacancies, and homelessness are ambiguous. As a result, we calibrate the model using a unique dataset from Baltimore, which allows us to directly observe underground rentals and vacancies. Our calibrations show that licensing may have a modest impact on rents, while increasing quality more substantially. (JEL L15, K42, D78, E26, O17)

Suggested Citation

  • Andrew Samuel & Jeremy Schwartz & Kerry Tan, 2021. "Licensing And The Informal Sector In Rental Housing Markets: Theory And Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 39(2), pages 325-347, April.
    • Handle: RePEc:bla:coecpo:v:39:y:2021:i:2:p:325-347
    DOI: 10.1111/coep.12501
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Aureo de Paula & Jose A. Scheinkman, 2007. "The Informal Sector, Second Version," PIER Working Paper Archive 07-035, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 17 Oct 2007.
    3. Cuff, Katherine & Marceau, Nicolas & Mongrain, Steeve & Roberts, Joanne, 2011. "Optimal Policies with an Informal Sector," Journal of Public Economics, Elsevier, vol. 95(11), pages 1280-1291.
    4. Diego Winkelried, 2005. "Income Distribution and the Size of the Informal Sector," Development and Comp Systems 0512005, University Library of Munich, Germany.
    5. Aureo de Paula & Jose A. Scheinkman, 2006. "The Informal Sector," Levine's Bibliography 122247000000001030, UCLA Department of Economics.
    6. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-1346, December.
    7. Jay Pil Choi & Marcel Thum, 2005. "Corruption And The Shadow Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, August.
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    9. Friedrich SCHNEIDER, 2016. "Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions," Turkish Economic Review, KSP Journals, vol. 3(2), pages 256-280, June.
    10. Glaeser, Edward L & Gyourko, Joseph & Saks, Raven, 2005. "Why Is Manhattan So Expensive? Regulation and the Rise in Housing Prices," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 331-369, October.
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    Cited by:

    1. Mishra, Ajit & Samuel, Andrew, 2024. "Bribery and temptation: More red tape or more discretion?," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 641-655.

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    More about this item

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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