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Do Courts Matter? Rental Markets and the Law

48 Pages Posted: 1 Dec 2005  

Pablo Casas-Arce

Arizona State University (ASU) - W.P. Carey School of Business

Albert Saiz

University of Pennsylvania - The Wharton School; IZA Institute of Labor Economics

Date Written: November 28, 2005

Abstract

We argue that the allocation of ownership rights will minimize enforcement costs when the legal system is inefficient. In particular, when legal enforcement is costly, there will be a shift from contractual arrangements that rely on such enforcement (such as a rental agreement) towards other forms that do not (such as direct ownership). We then test this prediction on data on the rental housing market, and show that costly enforcement of rental contracts hampers the development of such a market in a cross-section of countries. We argue that this association is not the result of reverse causation from a developed rental market to more investor-protective enforcement. The results provide supportive evidence on the importance of contract enforcement for the development of financial and other markets.

Keywords: contract enforcement, market development, housing rental markets

JEL Classification: K41, L14, R31, J41

Suggested Citation

Casas-Arce, Pablo and Saiz, Albert, Do Courts Matter? Rental Markets and the Law (November 28, 2005). Available at SSRN: https://ssrn.com/abstract=860544 or http://dx.doi.org/10.2139/ssrn.860544

Pablo Casas-Arce (Contact Author)

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

Albert Saiz

University of Pennsylvania - The Wharton School ( email )

314 Lauder-Fischer Hall
256 South Street
Philadelphia, PA 19104-6330
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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