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Leasing and Secondary Markets: Theory and Evidence from Commercial Aircraft

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  • Alessandro Gavazza

Abstract

I develop a model of costly capital reallocation to understand how leasing reduces trading frictions. Leased assets trade more frequently and produce more output than owned assets because (1) high-volatility firms are more likely to lease than low-volatility firms and (2) firms shed leased asssets faster than owned assets amid productivity shocks because of lower transaction costs. Commercial aircraft data show that leased aircraft have holding durations 38 percent shorter and fly 6.5 percent more hours than owned aircraft. These differences arise primarily because when profitability declines, carriers keep owned aircraft and return leased aircraft, which lessors redeploy to more productive operators.

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File URL: http://www.jstor.org/stable/full/10.1086/660730
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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 119 (2011)
Issue (Month): 2 ()
Pages: 325 - 377

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Handle: RePEc:ucp:jpolec:doi:10.1086/660730

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Cited by:
  1. Chemmanur, Thomas & Jiao, Yawen & Yan, An, 2010. "A theory of contractual provisions in leasing," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 116-142, January.
  2. Andrea L. Eisfeldt & Adriano A. Rampini, 2009. "Leasing, Ability to Repossess, and Debt Capacity," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1621-1657, April.
  3. Alessandro Gavazza, 2011. "The Role of Trading Frictions in Real Asset Markets," American Economic Review, American Economic Association, vol. 101(4), pages 1106-43, June.
  4. Borghan Nezami Narajabad & Cyril Monnet, 2012. "Why Rent When You Can Buy? A Theory of Repurchase Agreements," 2012 Meeting Papers 647, Society for Economic Dynamics.
  5. Myrto Kalouptsidi, 2011. "Time to Build and Shipping Prices," 2011 Meeting Papers 661, Society for Economic Dynamics.
  6. Gal, Peter & Pinter, Gabor, 2013. "Capital over the business cycle: renting versus ownership," Bank of England working papers 478, Bank of England.
  7. Anders, Christoph, 2010. "Auswirkungen des Leasings auf Transaktionskosten," Leasing - Wissenschaft & Praxis, Universität zu Köln, Forschungsinstitut für Leasing, vol. 8(2), pages 71-88.
  8. Wojahn, Oliver W., 2012. "Why does the airline industry over-invest?," Journal of Air Transport Management, Elsevier, vol. 19(C), pages 1-8.
  9. Gavazza, Alessandro & Lizzeri, Alessandro & Rokestkiy, Nikita, 2012. "A quantitative analysis of the used-car market," MPRA Paper 38414, University Library of Munich, Germany.
  10. Gordon M. Phillips & Giorgo Sertsios, 2011. "How Do Firm Financial Conditions Affect Product Quality and Pricing?," NBER Working Papers 17233, National Bureau of Economic Research, Inc.
  11. Lester, Benjamin & Rocheteau, Guillaume & Weill, Pierre-Olivier, 2014. "Competing for order flow in OTC markets," Working Papers 14-9, Federal Reserve Bank of Philadelphia.
  12. Gavazza, Alessandro, 2010. "Asset liquidity and financial contracts: Evidence from aircraft leases," Journal of Financial Economics, Elsevier, vol. 95(1), pages 62-84, January.

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