Procedural Formalism and Social Networks in the Housing Market
Résumé
Why do some OECD countries have high levels of procedural formalism (PF) in the housing market? We provide an explanation based upon complementarities between the strength of social networks and the stringency of procedural formalism. The interest of social networks is that conflict resolution is independent from the law. When local agents belong to social networks whereas non-local agents do not, PF may facilitate housing search for locals at the expense of non-locals. To illustrate this mechanism we build a search-theoretic model of the housing market. The model emphasizes that the demand for PF occurs when the size of social networks is large. By simulations, we show that the support for PF increases with the size of social networks, the default probability on the rent and the proportion of non-local agents.