Does owners’ purchase price affect rent offered? Experimental evidence

Shinichi Hirota, Kumi Suzuki-Löffelholz, Daisuke Udagawa

Research output: Contribution to journalArticlepeer-review

Abstract

In standard economic theory, rent determines real estate price; however, we hypothesize that in behavioral economics, real estate price affects the rent offered. We conduct laboratory experiments where a real estate market opens before a rental market and examine whether owners’ purchase price influences their rent-offering behavior. We find that the higher the purchase price, the higher the rent offered. We also confirm that higher contracted rents lead to higher prices in subsequent real estate markets. This suggests a positive interaction between real estate prices and rents in the real economy, which can explain the acceleration of price increases often observed in real estate markets.

Original languageEnglish
Article number100260
JournalJournal of Behavioral and Experimental Finance
Volume25
DOIs
Publication statusPublished - 2020 Mar

Keywords

  • Behavioral economics
  • Laboratory experiment
  • Real estate prices
  • Rents
  • Sunk cost

ASJC Scopus subject areas

  • Finance

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