Abstract
The purpose of this paper is to analyze the possibility to reduce social costs by designing practical incentive systems to induce tenants’high cost behavior to low cost one in the rental housing market. First, we construct a theoretical rental housing model including heterogeneous tenants (i.e., high-cost and low-cost) who are identified by their generating costs. We analyze numerically how the social costs change under the combination of the exogenous contract length and the criteria for judging tenants. Second, we discuss incentive systems to improve tenants’behavior. High-cost tenants willingly modify their behavior when they can enjoy less total payments of living. We introduce the subsidy system, relocating rent benefits from low-cost tenants to high-cost tenants, to encourage changes of high-cost tenants’behavior. This subsidy system leads high-cost tenants to modify their high-cost behavior, comparing the case of no such relocating subsidy system. It is beneficial for both tenants to modify rents by being judged their behavior, and it also contributes to reduce social costs.
