Vacancies and Rent Dispersion in a Stochastic Search Model with Generalized Tenant Demand.

The author models imperfect information, derives a downward sloping market demand curve, and explains vacancies in a partial equilibrium model of a rental housing market. Tenants can be completely described by an exogenous demand curve, perhaps arising from differences in income, preferred location, or tastes, and view vacant units based on a stochastic arrival of rental information. Free entry of these landlords induces excess rental housing capacity (equilibrium vacancies). He determines the equilibrium distribution of rents for vacant units, shows that this rent distribution may be discontinuous, and explores the equilibrium vacancy rate to changes in exogenous parameters. The resulting characterization of equilibrium distributions of rents may be amenable to econometric modeling exploring the relationship between market rents and vacancies. Copyright 1997 by Kluwer Academic Publishers