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Credit constraints, consumer leasing and the automobile replacement decision

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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.

Suggested Citation

  • Kathleen W. Johnson, 1999. "Credit constraints, consumer leasing and the automobile replacement decision," Finance and Economics Discussion Series 1999-68, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:1999-68
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    References listed on IDEAS

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    More about this item

    Keywords

    Consumer behavior; Consumer credit; Automobile industry and trade;
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