The Role of Leasing under Adverse Selection

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1、1IntroductionLeasingcontractsareextensivelyusedindurablegoodsmarkets.AthirdofthecapitalequipmentinUScorporationsisleased.Intheautomobilemarkettheimportanceofleaseshasbeengrowingandhasreachedthepointwherein1996,oneoutofthreenewcarshadbeenleased.Ifoneconsumerleasesandanotherbuys,shouldweex

2、pectthemtobehavedierentlyinsecondarymarketsorarethetwoconsumerssimplynancingasimilarutilizationofadurablegoodinadierentway?Evidenceinthecarmarket,showsthatbuyersandlesseesbehaveinadierentmanner.First,theturnoverofleasedcarsishigherthanthatofsoldcars.Second,o-leaseusedcarsseemtobeofb

3、etterqualitythanpre-ownedcarsofthesamevintage.Evidenceoftherstphenomenonisparticularlystrong.Lesseesbuytheircarsatmaturityonly25%ofthetime.Sincemostcarleaseshaveatwotothreeyearduration,thismeansthatalargefractionof1leasedcarsaresoldintheusedmarketbythetimetheyarethreeyearsold.In199642%o

4、fthesocalledpremiumusedcars,whichincludetwotofouryearoldcars,wereo-leasecars.Butbackin1993onlyoneoutoffournewcarswasleased.Forleasedcarstoaccountfor42%oftradesin1996,whileonlybeing25%ofthestockin1993,theymusthaveapropensitytobetradedwithintherstfouryearswhichis117%largerthanthatofsoldc

5、ars.FurtherevidenceisprovidedbySattler(1995)whoreportsthat56%of1989carmodelsinhissamplewereheldbytheirrstownerveyearslater.Moreover,theaveragelengthofperiodthatallnewcars(leasedandbought)areheldbeforechanginghandsisalmost6years.Thismeansthatnewcarbuyersholdontotheircarsmuchlongerthanco

6、nsumerswholease.Evidencethato-leasecarsarebetterqualityisalittleweakerbutstillsuggestive.Intheautomotivepressitisacommonnding.Forinstance,[T]heindustry-wideassumption2[is]thatthemostdesirableusedvehicleistheconsumero-leasevariety....Moreover,ad-vertisementsofusedcarsforsaleoftenspec

7、ifywhetheracariso-lease.Thiswouldhardlybehighlightediftheperceptionwasthato-leasecarsarenobetterthansoldcars.Finally,1Polk'sanalysisestimates2.88milliono-leasevehiclesreturnedtotheusedcarmarketin1997,87percentbeingtwo-andthree-year-oldvehicles.Infact,nal1997numberssho