« The Big Donor Show | Main | Assorted links »
A Warning Sign in India
In Maximum City, Suketu Mehta reports on a prominent sign in an office building.
Attention
This building is unsafe and likely to collapse. Persons entering the property do so at their own risk. The owner of the property will not be liable for any damage to life and property. Owners.
Inside the building are not drug dealers or homeless people but law firms, accountants and merchant bankers. So what's the explanation? This should be an easy one for MR readers but there's a hint in the extension.
Mehta also reports "The offices themselves are sleek, modern, air-conditioned, with computers blinking and flashing. Only the building's public areas are decrepit. Gaping holes mark the first floor where windows should be..."
Posted by Alex Tabarrok on May 30, 2007 at 07:30 AM in Economics | Permalink
Comments
The Rent Control Act doesn't give any incentive to the owners to actually maintain the property.
The rentals for some of these offices are the same as they were in 1950s.
Posted by: Mustafa Sabuwala at May 30, 2007 8:13:15 AM
Sounds also very much like skiing in Austria to me : most of the runs there, including the most frequented ones, are officially "off-piste", which must have to do with municipal liability in case somebody gets hurt...
Posted by: Henri Tournyol du Clos at May 30, 2007 8:48:57 AM
Is this a tricky way of showing transaction costs are lowish there (low enough that it's worth investigating the soundness of the building for law firms/accountants) but not for drug dealers and other single person firms?
Posted by: nelsonal at May 30, 2007 8:58:18 AM
They are trying to keep the masses from hanging out in the lobby.
Posted by: Pat at May 30, 2007 9:16:30 AM
This sounds like an office condominium to me, which is common in the developing world. Each unit is owned by the respective tenant. Common areas are governed by a condominium association agreement, with specific covenants, conditions, restrictions and obligations to maintain. If these obligations are de facto unenforceable due to a poor legal framework or high transactions costs, the common areas will become decrepit rather rapidly.
Posted by: Shiraz Allidina at May 30, 2007 9:17:18 AM
Rent control - landlord gets to raise the rents only when renters turn over. Landlord trying to scare/coerce the tenants into leaving. Even if the tenants don't believe the building is crumbling, their clients may shy away from visiting, making it tough to do business.
Posted by: JPC at May 30, 2007 9:32:22 AM
The book looks interesting, do you recommend it?
Posted by: d.cous. at May 30, 2007 10:27:16 AM
I'd be more inclined to believe that the language used is regulatory language for disclaiming liability for any activity on the premises, much like the back of a parking stub indicates all the liability releases. It can't just be a tragedy of the commons to the common areas, because if part of the building collapses everyone is out of luck. I'd imagine the owners are trying to just disclaim any potential liability through regulatory language.
Posted by: Joel B. at May 30, 2007 10:51:15 AM
You can't really disclaim liability, but only high-end tenants are sophisticated enough to know this?
Posted by: Trevor at May 30, 2007 11:15:43 AM
The obvious guess is that there's some need to keep random passers-by from filling up the lobby of the building. I'd assume it was to keep vagrants from congregating there, except that I don't think the information asymmetry is there (vagrants would eventually notice that rich people were going in and out, and probably will tolerate higher risks of building collapse than other people anyway).
Posted by: albatross at May 30, 2007 11:36:37 AM
Perhaps it reduces the risk of theft.
Posted by: fmb at May 30, 2007 12:14:20 PM
Tragedy of the Commons. Are the buildings government owned, or operated in some other communal fashion? The privately rented areas are well maintained, the public areas get no maintenance.
Posted by: Jeremy King at May 30, 2007 1:02:17 PM
Usually, the problem in Mumbai is that the value of the land is so high and the rents so low under rent control, that the building owner is no longer interested in upkeep. He is waiting for the building to collapse, and then rebuild. So, he is no longer performing the usual maintenance of the public areas.
It is also probably a way to scare off the tenants' employees, and thus hurt his tenants, to encourage them to move sooner.
Posted by: vish at May 30, 2007 1:22:11 PM
Mustafa (and others) have got it, Rent Control. Mehta reports "The landlords can do nothing but refuse to repair their properties. So there's no possibility of the housing stock of the island city improving or expanding anytime soon, and more of the island city falls down every year."
Lots more of interest:
"The provisions of the Rent Act also apply to commercial buildings, benefiting multinational corporations and large government enterprises which pay a pittance for their offices. Some of the richest people in the city live in rent-controlled bungalows all around Malabar Hill, inherited from their grandparents and great-grand parents. "
Yes, if you are interested in Bombay or India more generally, I recommend Maximum City. It covers religion, politics, crime, economics and more.
Posted by: Alex Tabarrok at May 30, 2007 3:15:36 PM
But ... but ... the building is still likely to collapse, right? So why do high-earning people expose
themselves to such risk? They typically wouldn't gamble that way, right?
Posted by: Person at May 30, 2007 3:49:41 PM
Why don't the tenants form a voluntary group and clean up the common areas?
Posted by: TomHynes at May 30, 2007 4:12:06 PM
I should have quoted this also, the landlords "are getting, by force of law, almost nothing in rent for their land. So they will put nothing into repairs for the building; all they can do is put up these cautionary signs, which they hope will frighten away the clients of the businesses within."
Thus, most of the buildings occupied by real businesses are probably pretty safe but as the previously quoted comments indicate it seems that some of the worst buildings do end up abandoned and dangerous eventually.
Posted by: Alex Tabarrok at May 30, 2007 4:16:50 PM
TomHynes's question is apt. The tenants have already extracted their surplus, or economic rent, from the bargain. Why should they not spend some of this to improve the building (to their own benefit), even if it is owned by the landlord? In the USA, it is not uncommon for a tenant to pay for specific improvements (to a portion of a property) which the landlord may inherit upon lease expiration. Following the Coase theorem, what is preventing the tenants from negotiating the efficient outcome? There is more than rent control involved here - inefficient property rights (probably contract enforceability) are preventing a Coasian solution.
Posted by: Shiraz Allidina at May 31, 2007 12:16:23 AM
Tom/Shiraz,
Perhaps the landlords are actually prohibiting them from altering the common areas. They'd probably be the ones setting the policy regarding alterations to common areas and if the gains from clearing out the tenants and rebuilding are large enough to offset the benefits of tenant-provided repairs, they would have an incentive to prohibit the tennants fixing the place up.
Posted by: MattXIV at May 31, 2007 6:52:42 PM
I'm betting it's because until construction on the building is "finished" the authorities will not collect taxes on it. A similar thing occurs in the Dominican Republic where you'll find very nice hotels and apartment buildings with the top floor still unfinished, just pipes and rebar jutting out of concrete.
Posted by: Topher at Jun 1, 2007 3:25:14 PM
数控机床数控机床。。数控改造。。
数控机床。。
数控机床改造。。
数控机床仿真软件数控机床改造。。
数控机床。。
数控机床。。
数控机床。。
数控车床数控车床。。
数控车床。。
华中数控车床。。
大连数控车床。。
无锡数控车床山东数控车床。。
南京数控车床。。
数控车床。。
数控车床。。
广州数控车床数控车床。。
广州数控车床。。
华中数控车床。。
数控车床。。
数控车床北京数控车床。。
数控车床简介。。
教学车床。。
教学数控车床。。
数控铣床南通数控铣床。。
数控铣床。。
数控铣床。。
数控铣床。。
教学数控铣床教学铣床。。
数控机床实训设备。。
加工中心。。
加工中心。。
加工中心加工中心。。
微型加工中心。。
数控加工中心。。
加工中心。。
加工中心加工中心。。
加工中心。。
上海加工中心。。
加工中心
Posted by: 南京北春 at Aug 21, 2007 3:05:07 AM
大家好，我是臺灣人，從臺灣一個人搬家來到美國，環境很陌生，感覺很孤單。以前在臺灣幾家知名的徵信社工作過，我是一個優秀的徵信工作者，希望早點找到適合自己的工作。希望通過貴站，認識更多的朋友。
Posted by: 謝文豪 at Apr 2, 2008 3:48:58 AM
