Owning Versus Leasing: Do Courts Matter?

51 Pages Posted: 13 Dec 2006

See all articles by Pablo Casas-Arce

Pablo Casas-Arce

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

Albert Saiz

MIT Department of Urban Studies and Planning; IZA Institute of Labor Economics

Date Written: September 2006

Abstract

The authors develop a legal contract enforcement theory of the own versus lease decision. The allocation of ownership rights will minimize enforcement costs when the legal system is inefficient. In particular, when legal enforcement of contracts is costly, there will be a shift from arrangements that rely on such enforcement (such as a rental agreement) toward other forms that do not (such as direct ownership). The authors then test this prediction and show that costly enforcement of rental contracts hampers the development of the rental housing market in a cross-section of countries. They argue that this association is not the result of reverse causation from a developed rental market to more investor-protective enforcement and is not driven by alternative institutional channels. The results provide supportive evidence on the importance of legal contract enforcement for market development and the optimal allocation of property rights.

Keywords: Home ownership, Rental housing

JEL Classification: J41, L14, K12, R31

Suggested Citation

Casas-Arce, Pablo and Saiz, Albert, Owning Versus Leasing: Do Courts Matter? (September 2006). FRB of Philadelphia Working Paper No. 06-21. Available at SSRN: https://ssrn.com/abstract=948281 or http://dx.doi.org/10.2139/ssrn.948281

Pablo Casas-Arce (Contact Author)

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

Tempe, AZ 85287-3706
United States

Albert Saiz

MIT Department of Urban Studies and Planning ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States
617-252-1687 (Phone)
617-258-6991 (Fax)

IZA Institute of Labor Economics

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

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