Paper Abstract
1094. Oren Bar-Gill & Tamar Kricheli-Katz, Contract, Duration and Discrimination, 02/2023.
Abstract: We study the relationship between racial residential segregation and contract duration. In the housing context, the main contract duration decision involves the choice between buying (long duration) and renting (short duration). If, because of discriminatory misperceptions or preferences, moving into a racially diverse neighborhood is perceived by some white residents to be a riskier or otherwise less preferred alternative, then (i) a white person moving into such a diverse neighborhood would be more likely to rent than buy; and (ii) a white person who is intent on buying, would be likely to choose a less diverse, predominantly white neighborhood. We empirically explore the relationship between contract duration and segregation. First, we study a rich survey data collected by the Bureau of Labor Statistics, which tracks 8,984 individuals, and their housing decisions, over a period of 17 years. Second, we run online, incentivized trust-game experiments (N=763), where we study the relationship between duration choices and partner choices. Our findings suggest that short-duration, rental contracts may help reduce discriminatory outcomes. White residents are more likely to rent in more diverse neighborhoods. And renting in a more diverse neighborhood may reduce discriminatory misperceptions or preferences, such that when the time comes to buy a house the search will include more diverse neighborhoods. If rental contracts can be more conducive to racial integration, this provides a reason to soften the strong policy preference for homeownership. We also briefly explore the relationship between contract duration and other contractual design choices beyond the housing context.