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Is Leasing Greener Than Selling?

Author

Listed:
  • Vishal V. Agrawal

    (McDonough School of Business, Georgetown University, Washington, DC 20057)

  • Mark Ferguson

    (Moore School of Business, University of South Carolina, Columbia, South Carolina 29208)

  • L. Beril Toktay

    (College of Management, Georgia Institute of Technology, Atlanta, Georgia 30332)

  • Valerie M. Thomas

    (School of Industrial and Systems Engineering and School of Public Policy, Georgia Institute of Technology, Atlanta, Georgia 30332)

Abstract

Based on the proposition that leasing is environmentally superior to selling, some firms have adopted a leasing strategy and others promote their existing leasing programs as environmentally superior to "green" their image. The argument is that because a leasing firm retains ownership of the off-lease units, it has an incentive to remarket them or invest in designing a more durable product, resulting in a lower volume of new production and disposal. However, leasing might be environmentally inferior because of the direct control the firm has over the off-lease products, which may prompt the firm to remove them from the market to avoid cannibalizing the demand for new products. Motivated by these issues, we adopt a life-cycle environmental impact perspective and analytically investigate if leasing can be both more profitable and have a lower total environmental impact. We find that leasing can be environmentally worse despite remarketing all off-lease products and greener than selling despite the mid-life removal of off-lease products. Our analysis also provides insights for environmental groups and entities that use different approaches to improve the environmental performance of business practices. We show that imposing disposal fees or encouraging remanufacturing, under some conditions, can actually lead to higher environmental impact. We also identify when educating consumers to be more environmentally conscious can improve the relative environmental performance of leasing. This paper was accepted by J. Miguel Villas-Boas, marketing.

Suggested Citation

  • Vishal V. Agrawal & Mark Ferguson & L. Beril Toktay & Valerie M. Thomas, 2012. "Is Leasing Greener Than Selling?," Management Science, INFORMS, vol. 58(3), pages 523-533, March.
    • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:3:p:523-533
    DOI: 10.1287/mnsc.1110.1428
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    References listed on IDEAS

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