This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Role of Leasing under Adverse Selection

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Igal Hendel
Alessandro Lizzeri

Additional information is available for the following registered author(s):

Abstract

Leasing contracts specify a rental rate and an option price at which the used good can be bought at the termination of the lease. This option price cannot be controlled when the car is sold. We show that in a world with symmetric information this additional control variable is useless; equilibrium allocations and profits to lessors are unaffected by the option prices. In contrast, under adverse selection, leasing contracts affect equilibrium allocations in a way that matches observed behavior in the car market. We show that a social planner can use leasing contracts to improve welfare but they are imperfect tools; they cannot generally achieve first best while other mechanisms can. We also show that a producer with market power can benefit from leasing contracts for two reasons: better pricing of the option of keeping the used good, and market segmentation. Moreover, despite the fact that lessors could structure contracts to prevent adverse selection (by raising the option price so high that no lessee keeps the used good) we show that this is not in their interest; a keeping option will always be included in some contracts.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w6577.pdf
File Format: application/pdf
File Function:
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6577.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: May 1998
Date of revision:
Handle: RePEc:nbr:nberwo:6577

Note: IO
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords:

Other versions of this item:

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Waldman, Michael, 1997. "Eliminating the Market for Secondhand Goods: An Alternative Explanation for Leasing," Journal of Law & Economics, University of Chicago Press, vol. 40(1), pages 61-92, April.
  2. Grenadier, Steven R., 1995. "Valuing lease contracts A real-options approach," Journal of Financial Economics, Elsevier, vol. 38(3), pages 297-331, July. [Downloadable!] (restricted)
  3. McConnell, John J. & Schallheim, James S., 1983. "Valuation of asset leasing contracts," Journal of Financial Economics, Elsevier, vol. 12(2), pages 237-261, August. [Downloadable!] (restricted)
  4. Bond, Eric W. & Samuelson, Larry, 1987. "The Coase conjecture need not hold for durable good monopolies with depreciation," Economics Letters, Elsevier, vol. 24(1), pages 93-97. [Downloadable!] (restricted)
  5. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  6. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Pollution permits and compliance strategies," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 85-125, October. [Downloadable!] (restricted)
    Other versions:
  7. Bulow, Jeremy, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 729-49, November. [Downloadable!] (restricted)
  8. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August. [Downloadable!] (restricted)
  9. Sharpe, Steven A. & Nguyen, Hien H., 1995. "Capital market imperfections and the incentive to lease," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 271-294. [Downloadable!] (restricted)
    Other versions:
  10. Grenadier, Steven R., 1996. "Leasing and credit risk," Journal of Financial Economics, Elsevier, vol. 42(3), pages 333-364, November. [Downloadable!] (restricted)
  11. Smith, Clifford W, Jr & Wakeman, L MacDonald, 1985. " Determinants of Corporate Leasing Policy," Journal of Finance, American Finance Association, vol. 40(3), pages 895-908, July. [Downloadable!] (restricted)
  12. Igal Hendel & Alessandro Lizzeri, 1997. "Adverse Selection in Durable Goods Markets," NBER Working Papers 6194, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Berger, Allen N. & Udell, Gregory F., 2005. "A more complete conceptual framework for financing of small and medium enterprises," Policy Research Working Paper Series 3795, The World Bank. [Downloadable!]
  2. Jong-Hee Hahn, 2004. "Leasing vs Selling in Differentiated Goods Markets," Keele Economics Research Papers KERP 2004/04, Centre for Economic Research, Keele University. [Downloadable!]
  3. Christopher L. House, 2008. "Fixed Costs and Long-Lived Investments," NBER Working Papers 14402, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Anindya Ghose, 2005. "Used Good Trade Patterns: A Cross-Country Comparison of Electronic Secondary Markets," Working Papers 05-19, NET Institute, revised Oct 2005. [Downloadable!]
  5. Dennis W. Carlton & Michael Waldman, 2005. "Tying, Upgrades, and Switching Costs in Durable-Goods Markets," NBER Working Papers 11407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Kenshi Taketa & Gregory F. Udell, 2007. "Lending Channels and Financial Shocks: The Case of Small and Medium-Sized Enterprise Trade Credit and the Japanese Banking Crisis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(2), pages 1-44, November. [Downloadable!]
  7. Battaglini, Marco, 2005. "Optimality and Renegotiation in Dynamic Contracting," CEPR Discussion Papers 5014, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Michael Waldman, 2004. "Antitrust Perspectives for Durable-Goods Markets," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  9. Marco Battaglini, 2003. "Long-Term Contracting with Markovian Consumers," Theory workshop papers 505798000000000048, UCLA Department of Economics. [Downloadable!]
    Other versions:
  10. Alessandro Lizzeri, 2003. "Efficient Sorting in a Dynamic Adverse Selection Model," Theory workshop papers 505798000000000098, UCLA Department of Economics. [Downloadable!]
    Other versions:
  11. Pasquale Schiraldi, 2006. "Second-Hand Markets and Collusion by Manufacturers of Semidurable Goods," Boston University - Department of Economics - Working Papers Series WP2006-028, Boston University - Department of Economics. [Downloadable!]
  12. Christopher L. House & Emre Ozdenoren, 2006. "Durable Goods and Conformity," NBER Working Papers 12028, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Igal Hendel & Alessandro Lizzeri & Marciano Siniscalchi, 2000. "Efficient Sorting in a Dynamic Adverse Selection Model: The Hot Potato," Econometric Society World Congress 2000 Contributed Papers 1209, Econometric Society. [Downloadable!]
Statistics
Access and download statistics

Did you know? Apart from a small start up grant in the 1990's, RePEc has received no funding and lives on the help of volunteers.

This page was last updated on 2009-11-21.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.