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PS15 - the new housing has been built however a city has an...

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Problem Set # 15 Solutions Chapter 14 #2 There is a time-inconsistency problem with an announcement that new buildings will be exempt from rent-control laws. Before new housing is built, a city has an incentive to promise this exemption: landlords then expect to receive high rents from the new housing they provide. Once
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Unformatted text preview: the new housing has been built, however, a city has an incentive to renege on its promise not to extend rent control. That way, many tenants gain while a few landlords lose. The problem is that builders might expect the city to renege on its promise; as a result, they may not build new buildings....
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