Beyond Ownership: Lessees and Idiosyncratic Valuation

Abstract

Previous research has shown that home ownership and possession of a small good both produce an endowment effect whereby endowees value their property higher than its market price. The present study investigates the existence of a bridge between these findings: whether non-owning possession of a home causes the possessor to add a value to the property above its market value. Subjects, who were randomly assigned to one of five conditions that varied engagement with a rented property, completed a survey that harvested subjects’ ideas about fair compensation when a proprietor denies lease renewal to a tenant. Tenants judged as fair more relocation allowance and a higher discounted purchase price than did non-residents. The results suggest that tenants add idiosyncratic value to their residences beyond the market value. This study thus shows promise in helping to develop more representative laws dealing with property transfers and furthers the body of evidence that possession, even without ownership, elicits an endowment effect.