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2000-02-10T10:36
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2020-04-06T08:47:15-07:00
2020-04-06T08:47:15-07:00
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Snce the early 1990’s, more and more consumers have acquired a new car by leasing it ather than purchasing it. In 1992, consumers leased approximately 14 percent of their new car cquisitions. By 1996, they were leasing approximately 34 percent of their new car acquisitions.1
Despite the growing popularity of leasing, few researchers have studied the consumer’s ecision to lease an automobile. These researchers have taken two approaches to the leasing ssue. Researchers such as Patrick (1984), Scerbinski (1988), Nunnally and Plath (1989) and iller (1995) show how consumers can make this decision using a cash flow analysis. Miller 1995) improves upon these cash-flow analyses by considering the value of the option to purchase the vehicle at the end of the lease.
Others have modeled the consumer’s decision to lease using incomplete information models. Using an adverse selection model, Hendel and Lizzeri (1998) demonstrate that consumers who place a high value on automobile quality choose a leasing contract because they are not likely to keep the automobile when it is used. By incorporating moral hazard into another adverse selection model, Guha and Waldman (1997) find that lessees are consumers with a high cost of maintaining their automobiles. They predict that high income consumers are more likely to lease because a higher cost of time leads to higher maintenance costs.
In this paper, I present a simple theoretical model of the effect of leasing contracts on the household’s decision to enter the automobile market. I use the observation that lease contracts are shorter loans with better collateral protection in order to incorporate credit constraints into the model. This model generates several intuitively appealing results. I test two of these results, as well as the assumption that credit constraints matter in the leasing decision. I find that lessees appear more credit constrained and acquire more expensive automobiles than households that purchase...
application/pdf
1999 - Reports - CREDIT CONSTRAINTS, CONSUMER LEASING AND THE AUTOMOBILE REPLACEMENT DECISION
Kathleen W. Johnson
Automobiles; Automobile leasing and renting; Consumer credit; Purchasing; United States--Mathematical models.
Snce the early 1990’s
more and more consumers have acquired a new car by leasing it ather than purchasing it. In 1992
consumers leased approximately 14 percent of their new car cquisitions. By 1996
they were leasing approximately 34 percent of their new car acquisitions.1
Despite the growing popularity of leasing
few researchers have studied the consumer’s ecision to lease an automobile. These researchers have taken two approaches to the leasing ssue. Researchers such as Patrick (1984)
Scerbinski (1988)
Nunnally and Plath (1989) and iller (1995) show how consumers can make this decision using a cash flow analysis. Miller 1995) improves upon these cash-flow analyses by considering the value of the option to purchase the vehicle at the end of the lease.
Others have modeled the consumer’s decision to lease using incomplete information models. Using an adverse selection model
Hendel and Lizzeri (1998) demonstrate that consumers who place a high value on automobile quality choose a leasing contract because they are not likely to keep the automobile when it is used. By incorporating moral hazard into another adverse selection model
Guha and Waldman (1997) find that lessees are consumers with a high cost of maintaining their automobiles. They predict that high income consumers are more likely to lease because a higher cost of time leads to higher maintenance costs.
In this paper
I present a simple theoretical model of the effect of leasing contracts on the household’s decision to enter the automobile market. I use the observation that lease contracts are shorter loans with better collateral protection in order to incorporate credit constraints into the model. This model generates several intuitively appealing results. I test two of these results
as well as the assumption that credit constraints matter in the leasing decision. I find that lessees appear more credit constrained and acquire more expensive automobiles than households that purchase...
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