Leasing and Secondary Markets: Theory and Evidence from Commercial Aircraft
AbstractI construct a dynamic model of transactions in used capital to understand the role of leasing when trading is subject to frictions. Firms trade assets to adjust their productive capacity in response to shocks to profitability. Transaction costs hinder the efficiency of the allocation of capital, and lessors act as trading intermediaries who reduce trading frictions. The model predicts that leased assets trade more frequently and produce more output than owned assets, for two reasons. First, high-volatility firms are more likely to lease than low-volatility firms, since they expect to adjust their capacity more frequently. Second, ownership's larger transaction costs widen owners' inaction bands relative to lessees'. Using data on commercial aircraft, I find that leased aircraft have holding durations 38-percent shorter and fly 6.5-percent more hours than owned aircraft. Additional tests indicate that most of these differential patterns in trading and utilization arise because owners have wider inaction bands than lessees, and carriers' self-selection into leasing plays a minor role.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 28821.
Date of creation: Apr 2010
Date of revision:
Leasing; Capital Goods; Aircraft;
Other versions of this item:
- Alessandro Gavazza, 2011. "Leasing and Secondary Markets: Theory and Evidence from Commercial Aircraft," Journal of Political Economy, University of Chicago Press, vol. 119(2), pages 325 - 377.
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Adriano Rampini & Andrea Eisfeldt, 2007.
"Leasing, Ability to Repossess, and Debt Capacity,"
07-19, Center for Economic Studies, U.S. Census Bureau.
- Wojahn, Oliver W., 2012. "Why does the airline industry over-invest?," Journal of Air Transport Management, Elsevier, vol. 19(C), pages 1-8.
- Gavazza, Alessandro & Lizzeri, Alessandro & Rokestkiy, Nikita, 2012.
"A quantitative analysis of the used-car market,"
38414, University Library of Munich, Germany.
- 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.
- Gavazza, Alessandro, 2010.
"The role of trading frictions in real asset markets,"
25781, University Library of Munich, Germany.
- 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.
- Myrto Kalouptsidi, 2011. "Time to Build and Shipping Prices," 2011 Meeting Papers 661, Society for Economic Dynamics.
- Anders, Christoph, 2010. "Auswirkungen des Leasings auf Transaktionskosten," Leasing - Wissenschaft & Praxis, Universität zu Köln, Forschungsinstitut für Leasing, vol. 8(2), pages 71-88.
- 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.
- Gavazza, Alessandro, 2010. "Asset liquidity and financial contracts: Evidence from aircraft leases," Journal of Financial Economics, Elsevier, vol. 95(1), pages 62-84, January.
- Gal, Peter & Pinter, Gabor, 2013. "Capital over the business cycle: renting versus ownership," Bank of England working papers 478, Bank of England.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.