DP9160 The neighbor is king: Customer discrimination in the housing market

Author(s): Pierre-Philippe Combes, Bruno Decreuse, Benoît Schmutz, Alain Trannoy
Publication Date: September 2012
Keyword(s): Customer Discrimination, Housing Market, Matching Frictions, Neighborhood Externalities
JEL(s): J71, R21
Programme Areas: Labour Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9160

This paper provides a method to single out customer-based discrimination in the housing market. We build a matching model with ethnic externalities where landlords differ in the number of housing units they own within the same building. Multiple-dwelling landlords discriminate more often than single-dwelling landlords only if some tenants are prejudiced against the minority group. By testing the null hypothesis whereby minority tenants are equally likely to have a multiple-dwelling landlord, we can test whether there is customer discrimination or not. We run the test on French data and show evidence of customer discrimination in the rental market.