Owning versus renting: Do courts matter?

Pablo Casas-Arce, Albert Saiz

Research output: Contribution to journalArticlepeer-review

13 Scopus citations


We develop a legal contract enforcement theory of the decision to own or lease. 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). We 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. We 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 for the importance of legal contract enforcement for market development and the optimal allocation of property rights.

Original languageEnglish (US)
Pages (from-to)137-165
Number of pages29
JournalJournal of Law and Economics
Issue number1
StatePublished - Feb 2010
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics
  • Law


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