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Adverse selection versus hold up: Tenure choice, tenancy protection and equilibrium in housing markets

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  • Seshimo, Hiroyuki

Abstract

In this paper, we consider the tenure choice problem under different schemes of legal tenancy protection. We analyze the interaction between the rental and resale housing markets under conditions of bilateral asymmetric information regarding housing quality and the type of residents. Home ownership is associated with a trade-off between the loss caused by asymmetric information and rent exploitation by landlords in a holdup problem. With perfect protection for tenants, adverse selection in the resale housing market becomes problematic, and the market disappears. Conversely, the absence of tenancy protection mitigates adverse selection in the resale housing market and leads to a separating equilibrium.

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  • 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.
    • Handle: RePEc:eee:regeco:v:48:y:2014:i:c:p:39-55
    DOI: 10.1016/j.regsciurbeco.2014.04.002
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    Cited by:

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    4. 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.

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    More about this item

    Keywords

    Tenure choice; Adverse selection; Right of residence; Tenant protection;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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