(A) two-period model of the korean chonsei market

Abstract

South Korea’s rental contract, called Chonsei has been one of the most popular method for both landlords and tenants. The tenant pays a certain amount of deposit of the property value, to the landlord, and the landlord repays that deposit to the tenant at the termination of the rental contract. Once the “Chonsei” deposit is paid to the landlord, the tenant does not need to make a monthly payment to the landlord. The main goal of this paper is to adapt Brueckner’s households mortgage-size decision model and show that my findings are somewhat consistent with Brueckner’s finding and then I use a Cobb-Douglas function to conduct comparative statics. Brueckner(1994) allowing households to save and borrow mortgage, uses a simple two-period framework where the size of the mortgage, the value of the house, and the level of saving are chosen simultaneously. My model shows that saving and mortgage decision are consistent with Brueckner’s findings even under the Chonsei system. And given tenants’ housing demand, I show how changes in Chonsei supply brings different impacts on market equilibrium