Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Thursday, December 30, 2004

Nominal vs. Real Rent

In some economies, it is clear that the nominal rent for an apartment is far less than the real rent: tenants are expected to make additional side payments to superintendents or watchmen for services that one might expect would be provided by the landlord (click here for a classic example).
[Thanks to JC for the tip]

Everyone knows the real rents exceed the nominal rents; they just don't know for sure by how much. The problem in these situations is that it is costly to acquire the necessary information about real rents (which are also more uncertain) to make rational maximizing choices. These information costs have effects on efficiency similar to those of a sales tax -- they reduce it.

How much do people have to pay to get jobs as watchmen or supers in these economies?
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