Friday, September 10, 2010

Perverse effects of rent controls

The Law of Unintended Consequences or how well meaning policies have counter-productive effects through generating perverse incentives is a staple of introductory microeconomics courses.
This example from Greg Mankiw's blog is particularly nice. Basically, its how universities in New York buy up property, whose prices are depressed due to rent-control. They rent them to faculty & pay them less accordingly. The implicit subsidy is not taxable so the professor's earnings reflect that i.e. they are even lower as a result.

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