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Discretionary Profit in Subsidised Housing Markets

Author

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  • Andries Nentjes

    (Faculteit der Rechtsgeleerdheid, University of Groningen, Westerhaven 16A, Postbus 716, 9700 AS Groningen, The Netherlands, A.Nentjes@rechten.rug.nl)

  • Wolfgang Schopp

    (International Institute for Applied Systems Analysis, A-2361 Laxenburg, Austria, schoepp@iiasa.ac.at)

Abstract

In the subsidised housing sector, building corporations can use their market power as purchasers to raise output of subsidised housing to a level higher than it is with perfect competition on both sides of the market. This holds true if the building society is perfectly X-efficient. The proposition is not necessarily true if the corporation maximises a utility function in which discretionary profit, or organisational slack, is an argument. The X-inefficient building society may set output higher or lower than with perfect competition. If the government grants a fixed subsidy per house and tries to constrain X-inefficiency by imposing a maximum price, this might be an incentive for the building corporation to maintain a planned shortage of subsidised houses. However, housing shortages will be smaller and welfare possibly greater than it is with perfect competition. The existence of a perfectly competitive non-subsidised housing sector is for the building corporation an incentive to increase strategically the output of subsidised housing and reduce planned shortages; but it does not necessarily eliminate such shortages.

Suggested Citation

  • Andries Nentjes & Wolfgang Schopp, 2000. "Discretionary Profit in Subsidised Housing Markets," Urban Studies, Urban Studies Journal Limited, vol. 37(1), pages 181-194, January.
    • Handle: RePEc:sae:urbstu:v:37:y:2000:i:1:p:181-194
    DOI: 10.1080/0042098002357
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    References listed on IDEAS

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    Cited by:

    1. Roelof de Jong & Andries Nentjes & Doede Wiersma, 2000. "Inefficiencies in Public Environmental Services," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(1), pages 69-79, May.

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