Interests not to follow normal paths of entrepreneurship

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Reference no: EM132233804

When studying entrepreneurship (as we did in the first discussion question involving Tomima Edmark) we see the following patterns: Entrepreneurs see opportunities for profits and then follow the path of combining resources into final products in hopes that their original ideas were correct. The incentive trails tend to be logical and make sense.

In political economy, however, we find sets of what economists call perverse incentives in which resource owners find it in their interests NOT to follow the normal paths of entrepreneurship. The article here presents a situation in San Francisco (Links to an external site.)Links to an external site. in which people who own property that can be turned into storefront businesses are keeping that property off the market because they believe the risks of losing money are greater than the potential gains from renting. (San Francisco rent control and tenant laws are so weighed against property owners that more than 10,000 apartments are held off the market despite the fact that the city has the highest rents in the country. From the article:

“As a landlord, unless they really nail me, I’m probably going to ride it out,” explained San Francisco landlord Dave Burleigh. “Because the risks of giving somebody a 5 or 10 year lease and not having it work out could be a lot greater for me.”

San Francisco Supervisor Sandra Fewer says she is working on legislation that would increase the fines property owners face in addition to putting other kinds of pressure on landlords to get vacant storefronts back on the market more quickly.

Would the potential of fines or other charges against landlords result in more businesses finding rental space, or are we likely to see other effects that come from perverse incentives? Discuss.

Reference no: EM132233804

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