RWP 23-03, April 2023
We develop a simple equilibrium model of rental markets for housing in which eviction occurs endogenously. Both landlords and renters lack commitment; a landlord evicts a delinquent tenant if they do not expect total future rent payments to cover costs, while tenants cannot commit to paying more rent than they would be able or willing to pay given their outside option of searching for a new house. Renters who are persistently delinquent are more likely to be evicted and pay more per quality-adjusted unit of housing than renters who are less likely to be delinquent. Evictions are never socially optimal, and lead to lower quality investment in housing and too few vacancies relative to the socially optimal allocation. In our calibrated model, housing externalities widen the gap in housing access and quality between relatively high- and low-earning renters. Finally, government policies that restrict landlords’ ability to evict can improve welfare, though a full moratorium on evictions should be reserved for crises; rent support is generally a better policy than restricting evictions.
JEL classifications: R31, R21, R38
Corbae, Dean, Andrew Glover, and Michael Nattinger. 2023. “Equilibrium Evictions.” Federal Reserve Bank of Kansas City, Research Working Paper no. 23-03, April. Available at External Linkhttps://doi.org/10.18651/RWP2023-03