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Credit constraints, consumer leasing and the automobile replacement decision

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  • Kathleen W. Johnson
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    Abstract

    This paper presents a model of consumer automobile replacement in the presence of leasing. The model incorporates credit constraints to distinguish between the leasing and purchasing options. It demonstrates how leasing increases the probability that a household replaces its automobile and how households that lease choose higher quality automobiles. The qualitative choice model of the household's decision to lease provides support for the observation that households that lease face credit constraints. It also shows that although households that lease new automobiles are quite similar to those that purchase, they exhibit differences consistent with the theory. In particular, they prefer newer, more expensive automobiles.

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    File URL: http://www.federalreserve.gov/pubs/feds/1999/199968/199968abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/1999/199968/199968pap.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-68.

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    Date of creation: 1999
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    Handle: RePEc:fip:fedgfe:1999-68

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    Related research

    Keywords: Consumer behavior ; Consumer credit ; Automobile industry and trade;

    This paper has been announced in the following NEP Reports:

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    1. Mannering, Fred L. & Train, Kenneth, 1985. "Recent directions in automobile demand modeling," Transportation Research Part B: Methodological, Elsevier, vol. 19(4), pages 265-274, August.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
    4. Hensher, David A, 1986. "Sequential and Full Information Maximum Likelihood Estimation of a Nested Logit Model," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 657-67, November.
    5. Ana Aizcorbe & Martha Starr-McCluer, 1996. "Vehicle ownership, vehicle acquisitions and the growth of auto leasing: evidence from consumer surveys," Finance and Economics Discussion Series 96-35, Board of Governors of the Federal Reserve System (U.S.).
    6. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    7. Mannering, Fred & Winston, Clifford & Starkey, William, 2002. "An exploratory analysis of automobile leasing by US households," Journal of Urban Economics, Elsevier, vol. 52(1), pages 154-176, July.
    8. Kenneth Train, 1985. "Qualitative Choice Analysis: Theory, Econometrics, and an Application to Automobile Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200554, December.
    9. Bar-Ilan, Avner & Blinder, Alan S, 1992. "Consumer Durables: Evidence on the Optimality of Usually Doing Nothing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(2), pages 258-72, May.
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