One crucial step toward an understanding of discrimination against blacks in rental housing is a careful analysis of the landlord's economic incentives. Such analysis does not exist in the literature. This paper develops a model of landlord behavior under perfect competition when both black and white tenants have racial prejudice. This model provides considerable support for open housing legislation and some insight into the design of such legislation. According to this exclusion model, open housing can help eliminate restrictions on the supply of housing available to blacks and reduce the differential between black and white rentals. Open housing will not lead to integration in individual apartment buildings, but this result is due to the prejudice of blacks and whites, not to any deficiency in the open housing approach to discrimination in housing. Furthermore, the exclusion model indicates that open housing will not be a financial disaster for landlords, and that it will not completely eliminate the black-white rent differential for neighborhoods undergoing racial change. Finally, clearinghouses for apartment information, which significantly lower landlords' incentives to discriminate, will increase the effectiveness of open housing legislation. Several ways to improve the effectiveness of open housing legislation are derived. (Author/JM)