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Rent Guarantee Insurance

Author

Listed:
  • Boaz Abramson
  • Stijn Van Nieuwerburgh

Abstract

A rent guarantee insurance (RGI) policy makes a limited number of rent payments to the landlord on behalf of an insured tenant unable to pay rent due to a negative income or health expenditure shock. We introduce RGI in a rich quantitative equilibrium model of housing insecurity and show it increases welfare by improving risk sharing across idiosyncratic and aggregate states of the world, reducing the need for a large security deposits, and reducing homelessness which imposes large costs on society. While unrestricted access is not financially viable with either private or public insurance providers due to moral hazard and adverse selection, restricting access can restore viability. Private insurers must target better off renters to break even, while public insurers focus on households most at-risk of homelessness.

Suggested Citation

  • Boaz Abramson & Stijn Van Nieuwerburgh, 2024. "Rent Guarantee Insurance," NBER Working Papers 32582, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32582
    Note: AP CF EFG PE
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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G5 - Financial Economics - - Household Finance
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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