What Do Rental Contracts Reveal About Adverse Selection and Moral Hazard in Rental Housing Markets?
Article first published online: 22 SEP 2003
Real Estate Economics
Volume 26, Issue 2, pages 309–329, June 1998
How to Cite
Benjamin, J. D., Lusht, K. M. and Shilling, J. D. (1998), What Do Rental Contracts Reveal About Adverse Selection and Moral Hazard in Rental Housing Markets?. Real Estate Economics, 26: 309–329. doi: 10.1111/1540-6229.00747
- Issue published online: 22 SEP 2003
- Article first published online: 22 SEP 2003
This article examines the pricing of rental contracts for two types of renter households: those who are able to amass a large, up-front security deposit and those with little, or no, security to offer. Empirical tests are presented to suggest that, in dealing with renter households who have little, or no, security to offer, landlords earn at a similar rate of return as lenders who make riskier loans at a high interest rate to borrowers of dubious credit. The analysis suggests that this situation occurs in large part because of the problem of asymmetric information and moral hazard between landlords and renter households regarding the latter's use of the premises.