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Owning versus leasing: do courts matter?

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  • Pablo Casas-Arce
  • Albert Saiz

Abstract

The authors develop a legal contract enforcement theory of the own versus lease decision. The allocation of ownership rights will minimize enforcement costs when the legal system is inefficient. In particular, when legal enforcement of contracts is costly, there will be a shift from arrangements that rely on such enforcement (such as a rental agreement) toward other forms that do not (such as direct ownership). The authors then test this prediction and show that costly enforcement of rental contracts hampers the development of the rental housing market in a cross-section of countries. They argue that this association is not the result of reverse causation from a developed rental market to more investor-protective enforcement and is not driven by alternative institutional channels. The results provide supportive evidence on the importance of legal contract enforcement for market development and the optimal allocation of property rights.

Suggested Citation

  • Pablo Casas-Arce & Albert Saiz, 2006. "Owning versus leasing: do courts matter?," Working Papers 06-21, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:06-21
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    References listed on IDEAS

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    Cited by:

    1. Alexandre Janiak, 2008. "Mobility in Europe - Why it is low, the bottlenecks, and the policy solutions," European Economy - Economic Papers 2008 - 2015 340, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Coulson, N. Edward & Fisher, Lynn M., 2009. "Housing tenure and labor market impacts: The search goes on," Journal of Urban Economics, Elsevier, vol. 65(3), pages 252-264, May.
    3. Pablo Casas-Arce & Albert Saiz, 2010. "Owning versus Renting: Do Courts Matter?," Journal of Law and Economics, University of Chicago Press, vol. 53(1), pages 137-165, February.
    4. Prince Christian R. Cruz, 2008. "Transaction Costs and Housing Affordability in Asia," International Real Estate Review, Global Social Science Institute, vol. 11(1), pages 128-150.

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