Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73431
Authors: 
Arnold, Lutz G.
Babl, Andreas
Year of Publication: 
2013
Series/Report no.: 
BGPE Discussion Paper 134
Abstract: 
This paper analyzes a model in which housing tenure choice serves as a means of screening households with different utilization rates. If the proportion of low-utilization types is small, there is a separating equilibrium at which tenure choice acts as a screening device: consistent with empirical evidence, low-utilization households buy a house, while high-utilization types rent. Otherwise, there is a pooling equilibrium. The reason why, contrary to standard screening models, a pooling equilibrium possibly exists is indivisibility of home ownership, which makes it a very costly screening device. Introducing partial ownership restores the standard results: non-existence of a pooling equilibrium and possible non-existence of an equilibrium. The same mechanisms are at work in a corporate finance context.
Subjects: 
housing
tenure choice
asymmetric information
screening
JEL: 
R31
D82
Document Type: 
Working Paper

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