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A Study of the Brokerage Cost Allocation in a Rental Housing Market with Asymmetric Information

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Abstract

We analyze the brokerage service cost allocation in the rental housing market. We explain the alleged inconsistent phenomenon of landlords only occasionally requiring tenants to incur mediation cost. We show that when asymmetric information is introduced, under which tenants’ tenure horizon is unobservable to landlords, a separating equilibrium may be attained, in which the length of the tenant's tenure horizon is directly related to his share in the brokerage commission. Finally, we empirically examine and confirm a set of the model's assumptions and derivations within the rental housing-market framework.

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Authors and Affiliations

  1. The Interdisciplinary Center Herzliya, The Arison School of Business, Herzliya, 46150, Israel

    Danny Ben-Shahar

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  1. Danny Ben-Shahar
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Ben-Shahar, D. A Study of the Brokerage Cost Allocation in a Rental Housing Market with Asymmetric Information. The Journal of Real Estate Finance and Economics 23, 77–94 (2001). https://doi.org/10.1023/A:1011116807927

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