Template-Type: ReDIF-Paper 1.0

Author-Name: Lutz G. Arnold 
Author-X-Name-First: Lutz G.
Author-X-Name-Last: Arnold

Author-Name: Andreas Babl
Author-X-Name-First: Andreas
Author-X-Name-Last: Babl


Title: Alas, My Home is My Castle: The Excessive Screening Cost of Buying a House

	
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.

Length: 21 pages

Creation-Date:  2013-03

File-URL: http://www.bgpe.de/texte/DP/134_ArnoldBabl.pdf
File-Format: Application/pdf

File-Function: First version, 2013

Number: 134

Classification-JEL: R31, D82

Keywords: housing, tenure choice, asymmetric information, screening

Handle: RePEc:bav:wpaper:134_ArnoldBabl