Maintenance, Housing Quality, and Vacancies under Imperfect Information

A model of a rental housing market is presented in which landlords economize on the maintenance of housing quality to profit from tenants imperfect information. In a partial equilibrium model that describes tenants by their distribution of minimum acceptable (reservation) quality for units priced at an identical rent, these profits induce entry of new units, resulting in rental vacancies. The equilibrium number of landlords and the market vacancy rate are derived in a free entry, imperfect information equilibrium in which the distribution of rental unit qualities range from the competitive quality to that which would be offered by a monopoly landlord.