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Urban Studies, Vol. 37, No. 1, 181-194 (2000)
DOI: 10.1080/0042098002357

Discretionary Profit in Subsidised Housing Markets

Andries Nentjes

Faculteit der Rechtsgeleerdheid, University of Groningen, Westerhaven 16A, Postbus 716, 9700 AS Groningen, The Netherlands, A.Nentjes{at}rechten.rug.nl

Wolfgang Schopp

International Institute for Applied Systems Analysis, A-2361 Laxenburg, Austria, schoepp{at}iiasa.ac.at

In the subsidised housing sector, building corporations can use their market power as purchasers to raise output of subsidised housing to a level higher than it is with perfect competition on both sides of the market. This holds true if the building society is perfectly X-efficient. The proposition is not necessarily true if the corporation maximises a utility function in which discretionary profit, or organisational slack, is an argument. The X-inefficient building society may set output higher or lower than with perfect competition. If the government grants a fixed subsidy per house and tries to constrain X-inefficiency by imposing a maximum price, this might be an incentive for the building corporation to maintain a planned shortage of subsidised houses. However, housing shortages will be smaller and welfare possibly greater than it is with perfect competition. The existence of a perfectly competitive non-subsidised housing sector is for the building corporation an incentive to increase strategically the output of subsidised housing and reduce planned shortages; but it does not necessarily eliminate such shortages.


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