Regulation and Reference Prices in Real Estate Markets
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This paper analyzes rent regulation and its effect on expectation formation of market participants in the context of uncertainty about finding trading partners. Based on a Walrasian reference, uncertainty and a search market are described in order to analyze the contribution of intermediaries to market equilibrium. It is shown, that the existence of an intermediary can be welfare improving, since he reduces transaction cost. When rent controls are introduced below the equilibrium price level, not only market prices fall, excess demand emerges and intermediaries may expect lower compensation for their service. It is also found that intermediaries' welfare contribution proportionally shrinks with the distance of regulated to unregulated price levels. Moreover, unserved demand may distort other partial markets as well and affect the production potential of the economy.
JEL-Classification: R31, R38, D4.
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