Land Bubbles Despite Non-Vanishing Rents

In any rational bubble model with a dividend-paying asset, the dividend yield (dividend to price ratio) must converge to zero in the long run (see, for instance, Lemma 1 of my JPE paper). Some people have a strong belief that the dividend yield should be stationary and reject the idea of rational bubbles on this basis.

I presented my housing paper at Princeton on September 30, 2024. The audience was very smart, and the paper was well received. Regarding the dividend yield (rent yield in the case of housing), Nobuhiro Kiyotaki suggested that if we introduce the construction of housing, we need to separate the rent accruing to the housing structure and that to land. Consequently, it could be the case that there is a land bubble (the ratio between the pure land rent and land price converges to zero) but the housing rent to price ratio appears to be stationary. This was a very smart insight, and after going back to my hotel room, I wrote up a simple version of the model along these lines.

Subsequently, although Tomohiro Hirano and I have been successful in publishing a few papers on rational bubbles including Journal of Political Economy and Proceedings of the National Academy of Sciences, for other papers we keep getting pushbacks from non-experts, dogmatic reviewers, or those with conflicts of interest. Being fed up with this situation, I decided to publish my note to shut down the claim that “rent yield should be stationary”.

I submitted my paper to Economics Letters on October 25, 2025. Upon checking its status, I saw that it was reviewed within a few days, and I received a formal letter of acceptance on October 29, 2025. Although acceptance as is has happened to me before (once at Journal of Economic Theory, once at Journal of Mathematical Economics (before I became a coeditor, of course), and once at Economic Inquiry), getting a paper accepted in 4 days is my fastest ever. I applaud the editorial board of Economics Letters for upholding science and disseminating scientific knowledge without delay (unlike some club journals).