The effects of partial-coverage rent control on the price and quantity of rental housing

Rent control is widely used, but its effects are little understood. A two-sector model is provided that predicts the effects of rent control on both the price and quantity of rental housing and allows estimates of the size of these effects with limited amounts of data from jurisdictions which have controlled and uncontrolled sectors. Among other things, the model indicates the relationship between the price of rental housing in the absence of rent control and controlled and uncontrolled rent levels under a partial-coverage regime.     

Rent control with reputation: theory and evidence

Rent-control policy is modeled as an implicit contract between voters of a community and suppliers of rental housing. It is shown that if residents can make an ex ante commitment to never adopt rent controls they will do so. When precommitment is not possible there are conditions under which a policy of never adopting rent controls is not self-enforcing. Under such circumstances a state-invariant ceiling price is shown to be a subgame-perfect equilibrium rent-control policy. The model is tested using data for New Jersey where local option regarding the choice of rent control policy was declared constitutional in the early 1970s. Probit analysis is used to determine whether predictions of the model are supported by an investigation of factors leading to imposition of rent controls by 64 of the 245 communities in the sample.     

On the short-term effects of long-term change in cities: An efficient land markets model

This article develops a model of the determination of urban rent functions in the short-term when the housing stock is assumed fixed. The model suggests that expectations concerning the nature of long-term equilibrium play a central role in determining short-term rents. Open and closed models are discussed as alternative long-term paradigms applicable to different types of exogenous changes. The model suggests, first, that the short-term rent on housing gradient is always below the long-term gradient. Second, depending on whether land-owners have perfect or imperfect information concerning the nature of long-term equilibrium, the short-term rent gradient could signal them to rebuild the housing stock at the correct long-term density level or at too high or too low density levels.     

Welfare analysis of rent control with side payments: a natural experiment in Cairo, Egypt

Anecdotal evidence suggests that bribery is a common means of obtaining rent controlled apartments. Increased tenant maintenance is a less often noted, but potentially important, phenomenon in controlled markets. Previous empirical studies of the effects of rent control have neglected these side payments, presumably for lack of data. This paper presents evidence on their size and incidence for the controlled market of Cairo, Egypt, as well as estimates of effects such side payments have on welfare gains and losses from controls.     

On the possibility of positive rent gradients

The negative rent gradient is a virtually unanimous prediction of urban residential land rent models and a condition of locational equilibrium. This is the result of treating urban rents solely as location rents, where location is defined in terms of accessibility to the CBD. Urban rent may include another component, “externality rent,” which could, for instance, reflect neighborhood externalities in the form of area amenities and pleasant living environments. Introducing externality rent as an element in urban rent makes a positive rent gradient possible, provided that the externality is internalized in the land market. Conditions for a positive rent gradient are determined for both the identical and unequal incomes cases.     

Simplified Alonso–Mills–Muth model with a monopoly vendor

One important but unrealistic assumption in the simplified Alonso–Mills–Muth (AMM(0)) model is that the composite good is ubiquitous and thus there is zero shopping cost for residents. This paper assumes that the composite good is only sold by a monopoly vendor inside the city and hence a shopping cost is inevitable for residents. It is shown that the vendor will locate at the city boundary in equilibrium. In contrast to the symmetric land rent pattern in the AMM(0) model, the current AMM(k) model offers an asymmetric land rent pattern in equilibrium. Moreover, this paper shows that a rent-maximizing government either regulates the vendor to locate at the central business district (CBD) (when income is high) or does not enact any regulation (when income is low).     

The economics of urban yard space: An “implicit-market” model for housing attributes

A theoretical housing model is developed embodying the approach of the recent hedonic price literature. Instead of focusing on a scalar “housing service” consumption measure, the model portrays housing as a commodity with two attributes: floor space and yard space. Developers react to a consumer bid-rent function, which relates dwelling rent to floor space, yard space, and location, in choosing the profit-maximizing characteristics of their housing complexes. The spatial behavior of the developer's choice variables is investigated (an interesting question is whether yards are larger farther from the urban center), and a comparative static analysis of the housing market equilibrium is presented.     

Urban agglomeration effects and employment and wage gradients

When employment occurs at both central and non-central points, but firms have a preference to be near the center, the rent gradient will decline, and a wage gradient is necessary to compensate workers for more centrally located employment. Wage gradients and rent gradients are jointly determined. The relationship between wage offer functions and the equilibrium wage gradient is derived, the latter dependent on utility functions and commuting costs. This is illustrated with a two sector model incorporating agglomeration economies in the export sector. Numerical solution reveals how agglomeration economies affect wages, employment, and city size.     

Exclusivity and Control

We model competition between content distributors (platforms) for content providers, and show that whether or not content is exclusive or “multihomes” depends crucially on whether or not content providers maintain control over their own pricing to consumers: if content providers sell their content outright and relinquish control, they will tend to be exclusive; on the other hand, if content providers maintain control and only “affiliate” with platforms, then multihoming is sustainable in equilibrium. We show that the outcome under affiliation depends on the tradeoff between platform rent extraction (which increases in exclusivity) and content rent extraction (which increases in multihoming), and demonstrate that the propensity for exclusivity can be increasing, decreasing, or even nonmonotonic in content quality. Finally, if a content provider internalizes the effect of its own price on platform demand, we prove that a platform that already has exclusive access to content may prefer to relinquish control over content pricing to the content provider in order to reduce price competition at the platform level.     

Resolution of Demand Uncertainty and Competitive Rent Adjustment

This article shows that even when the tenants can acquire the information about rents at no cost, it is possible to get rent dispersion if there is uncertainty about the demand in the market. The equilibrium with rent dispersion has the property that rents rise with the arrival of new tenants. However, even though identical units are offered at different rents, each unit generates zero expected profits. This is because a unit offered at a high rent has a smaller probability of being rented than does a unit offered at a lower rent. If demand uncertainty is resolved sequentially, then rents reveal an increasing trend through time because units with lower rents are rented before units with higher rents. Vacancies are also possible in the current model because some of the units with higher rents might not be rented depending on the realization of total demand in the market.     

The possibility of positive rent gradients reconsidered

Despite empirical evidence to the contrary most residential location models are consistent only with a negative rent gradient. Richardson has suggested including average neighborhood plot size as an argument of the utility function; a positive rent gradient is not then a priori inconsistent with equilibrium. However, Richardson does not define the concept of equilibrium, and the purpose of this paper is to suggest a reasonable definition and to show that the rent gradient is negative if the utility function is strictly quasi-concave and if individual and average neighborhood plot size are substitutes.     

The stochastic implications of rent maximization: an application to stumpage rates for timber in British Columbia

We construct a model of rent‐maximizing behaviour by a single seller of timber in the absence of a formal market, deriving the stochastic implications of rent maximization for timber prices (stumpage rates) when other input and output (lumber) prices are random. Subsequently, we examine the model's ability to describe monthly, time‐series, stumpage‐rate data from British Columbia, Canada between January 1979 and October 1999. Deviations of stumpage rates from their long‐run trend are also structured by an error‐correction model which suggests that between 13 and 20% of period‐to‐period changes in stumpage rates can be explained by an equilibrium adjustment term. Copyright © 2004 John Wiley & Sons, Ltd.     

Spatial equilibrium with local public goods: Urban land rent,optimal city size and the Tiebout hypothesis

This paper extends the standard model of urban land rent to consider the spatial equilibrium conditions in a local public goods market as hypothesized by Charles M. Tiebout. An analysis is made of the spatial dimensions of public goods, their degree of ‘localness’ and their impact on land values. It is shown that the optimal population size of the community (Tiebout's sixth assumption) is simultaneously derived with the optimal supply of local public goods and local taxes. It is also shown that land rent is a poor output indicator of Tiebout's equilibrium conditions and that the capitalization assumption is not the appropriate test for his hypothesis.     

基建项目寻租行为各相关利益主体的博弈分析

寻租行为的产生是造成国家固定资产投资效率低下的根源之一.文章分析了基本建设项目寻租行为相关利益主体即国家、政府官员和承包商三方之间的博弈关系,建立了三方的博弈模型,对寻租行为发生的条件进行了讨论,并得出了三方博弈的均衡解.最后根据分析结果对如何降低寻租行为发生的概率提出了几点建议.     

When does universal peace prevail? Secession and group formation in conflict

This paper analyzes secession and group formation in the general model of contests due to Esteban and Ray (1999). This model encompasses as special cases rent seeking contests and policy conflicts, where agents lobby over the choice of a policy in a one-dimensional policy space. We show that in both models the grand coalition is the efficient coalition structure and agents are always better off in the grand coalition than in a contest among singletons. Individual agents (in the rent seeking contest) and extremists (in the policy conflict) only have an incentive to secede when they anticipate that their secession will not be followed by additional secessions. Incentives to secede are lower when agents cooperate inside groups. The grand coalition emerges as the unique subgame perfect equilibrium outcome of a sequential game of coalition formation in rent seeking contests. Received: March 2004, Accepted: October 2004, JEL Classification: D72, D74 We thank Joan Maria Esteban, Kai Konrad, Debraj Ray, Stergios Skaperdas and two anonymous referees for helpful comments on the paper. We also benefitted from comments by seminar participants in Barcelona, Istanbul, Paris and WZB Berlin.     

Wage gradients,rent gradients,and the price elasticity of demand for housing: An empirical investigation

As developed in Muth's “Cities and Housing,” attainment of locational equilibrium within an urban area implies a necessary functional correspondence between wage and price gradients and the compensated price elasticity of demand for housing. In this paper estimates of the rent and wage gradients are utilized to generate price-elasticity estimates via this equilibrium correspondence. The Box-Cox transformation technique is used with data from the metropolitan Chicago area to test for the functional forms of the wage and rent gradients. The optimal maximum-likelihood functional forms for both gradients yield a price-elasticity estimate of ?0.40.     

When worlds collide: Different comparative static predictions of continuous and discrete agent models with land

This paper presents a difference in the comparative statics of general equilibrium models with land when there are finitely many agents, and when there is a continuum of agents. Restricting attention to quasi-linear and Cobb–Douglas utility, it is shown that with finitely many agents, an increase in the (marginal) commuting cost increases land rent per unit (that is, land rent averaged over the consumer's equilibrium parcel) paid by the consumer located at each fixed distance from the central business district. In contrast, with a continuum of agents, average land rent goes up for consumers at each fixed distance close to the central business district, is constant at some intermediate distance, and decreases for locations farther away. Therefore, there is a qualitative difference between the two types of models, and this difference is potentially testable.     

Urban agglomeration economies in a Linear City

A model of firms' spatial allocation and location is developed by explicit incorporation of urban agglomeration benefits using accessibility measure. In a linear and one-activity city, each firm is assumed to interact with each other for face-to-face transactions, and the unit construction cost of office building is considered to be proportional to firm density. It is shown that both the optimum and the equilibrium distributions of firms are cosine, quadratic or cosine-hyperbolic curves, that the latter is more dispersed, and that the equilibrium rent function is concave near the city center and convex near the boundaries.     

A probabilistic approach to the structure of rental housing markets

A probabilistic view of the structure of urban housing markets is developed. The demand side is based on aggregate probabilistic demand functions derived from microbehavioral random utility theory. The supply side examines the short-run pricing of the housing stock by developing “asking rent theory,” which explains how a housing supplier must find the optimal rent that maximizes expected revenue. Next, concepts of aggregate market clearing and market equilibrium are defined. Finally, a two-submarket model with specific assumptions regarding the representation of demand and the nature of market signaling is examined in detail and is given a graphical illustration. In closing, directions for extending the probabilistic approach both within and beyond urban analysis are pointed out. All analysis in this paper is for a stationary urban economy, with the housing stock assumed fixed.     

Landlords, tenants and the public sector in a spatial equilibrium model of rent control

A spatial model is used to explore the effects of urban rent control. When landlords and tenants can alter economic and location decisions, policy effects in controlled and uncontrolled zones may differ from standard predictions. Tenants in both zones may benefit from the control, even after unfavorable landlord adjustments, but these gains are likely to come at the expense of landlords and the public sector. Efforts to restore profits and fiscal balance, without negating utility gains to renters, may fail unless control distortions can be adequately shifted to absentee landowners through lower site rents. Lump-sum renter subsidies may offer equivalent utility gains with less severe impacts on landlords and the public sector, but the supply elasticity of land again matters.