evaluating leases with complex operating options abstract the paper deals with the numerical valuation of leasing contracts with a variety of embedded operating options unlike earlier work which either ignores such options or focuses on only one type of operating option in isolation this paper recognizes that leasing is a context in which complex options typically occur as well as the importance of using computational methods to quantify the interactions among several options present in combination it describes a contingent claims analysis cca of operating lease options and suggests a cca based numerical analysis method for valuing leasing contracts with multiple such options a numerical leasing example with the options to cancel the lease early extend its life and purchase the leased asset is presented for illustration

dynamic interaction between markets for leasing and selling automobiles we develop a model of dynamic interactions between price variations in leasing and selling markets for automobiles our framework assumes a differential game between multiple bertrand type competing firms which offer differentiated products to forward looking agents empirical analysis of our model using monthly us data from 2002 to 2011 shows that variations in selling cash market prices lead rapidly dissipating changes of leasing market prices in the opposite direction we discuss the practical implications of these results by augmenting a standard leasing valuation formula the additional terms represent the leased asset value changes that can be expected on the basis of past variations in automobile selling market prices

stationary equilibrium in a market for durable assets this paper presents a dynamic model of consumer trading on the primary secondary and scrap markets for a stochastically deteriorating durable good in a stationary economy with perfect information and no transaction costs we explicitly model the trading process by tracking each durable from its birth in the primary market through its sequence of owners in the secondary market until its death in the scrap market we prove that a stationary equilibrium exists characterize the distribution of consumer holdings of durables and show that equilibrium asset prices are shadow prices to a particular regenerative optimal stopping problem we show that each heterogeneous agent equilibrium is observationally equivalent to a homogeneous agent equilibrium we derive a differential equation for equilibrium rental rates and a functional equation which links rental rates to asset prices these equations show precisely how the structure of durable prices and rental rates embody the functional form and population distribution of preferences and the technological characteristics of durable goods this abstract was borrowed from another version of this item

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

dual distribution channels the competition between rental agencies and dealers managerial decisions involving marketing channels are among the most critical that an organization must make part of the reason for this importance is that relationships between manufacturers and their intermediaries usually involve long term commitments that are difficult to change on the other hand in order to respond to the realities of the market place an organization must be ready to adapt its distribution practices sometimes under considerable uncertainty about the long term consequences such a problem faces the u s automobile industry which has led manufacturers to experiment with various channel structures when manufacturers first changed their distribution policies they were clear about the short term effect on sales but were unsure about its longer term impact on profitability in this article we develop a model to analyze the marketing of durable products through multiple channels our analysis suggests that even though it was not apparent at the time manufacturers were indeed behaving optimally when they changed their policies our model provides insights not only to automobile manufacturers but also to practitioners and academics who are interested in understanding the unique problems associated with marketing durable products through multiple channels we develop a two period model by assuming that a single manufacturer markets a durable product through two retailers a rental agency and a dealer the rental agency focuses mainly on renting the product in a daily rental market while the dealer focuses on selling the product to a different set of customers in the sales market to model the development of channels in the u s automobile industry we analyze three different channel structures the first structure a separate channel reflects the state of the industry through most of the 1980s when rental agencies were franchised solely to rent and dealers solely to sell the cars in response to a decrease in overall sales manufacturers encouraged rental agencies to sell their slightly used rental cars in the consumer market resulting in the second structure an overlapping channel dealers did not like this arrangement however and in the next experiment a buyback channel some manufacturers began buying back used rental cars and selling them through dealers in terms of the consumer side of the model we assume that consumers are heterogeneous and have product valuations that are distributed uniformly between a low and a high value in addition they recognize that as the durable depreciates with use its secondhand market value decreases while both sold and rented goods depreciate with use we assume based on an analysis of market prices that sold goods depreciate at a higher rate than rented goods given these different depreciation rates and consumers underlying utility functions we develop the market demand functions in the dealer s and rental agency s markets then for each of the channel structures we solve the intermediaries and manufacturer s problems the main contribution of this article is that it allows us to evaluate the profitability associated with various channel structures for all the players in our analysis the dealer the rental agency and the manufacturer in terms of the intermediaries we find that the overlapping channel is the most profitable structure for the rental agency on the other hand it is the least profitable for the dealer in terms of manufacturer profitability our model suggests that the separate channel is the least profitable and the overlapping channel is the most profitable it is interesting to note that the distribution structure in existence today is more akin to a buyback channel this strikes us as a compromise channel which alleviates dealer concerns with the overlapping channel and yet does not harm rental agencies as much as a separate channel these are surprising results because conventional wisdom has been that the overlapping channel was competing away profits for all players this suggests to us that automobile manufacturers were indeed on the right track when they began experimenting with the structure of their distribution channels

durable goods monopoly with varying demand this paper solves for the proflt maximising strategy of a durable goods monopolist when incoming demand varies over time each period additional consumers enter the market these consumers can then choose whether and when to purchase we flrst characterise the consumer s utility maximisation problem and under a monotonicity condition show the proflt maximising allocation can be solved through a myopic algorithm which has an intuitive marginal revenue interpretation consumers ability to delay creates an asymmetry in the optimal price path which exhibits fast increases and slow declines this asymmetry pushes the price level above that charged by a flrm facing the average level of demand applications of this framework include deterministic demand cycles one ofi shocks and iid demand draws the optimal policy outperforms renting and can be implemented by a time consistent best price provision

existence of stationary equilibrium in the markets for new and used durable goods abstract we prove the existence of stationary equilibrium in the primary and secondhand markets for an indivisible consumer durable in a general model with stochastic degradation and endogenous scrappage decisions unlike rust econometrica 53 1985 783 we introduce transaction costs in the model as a motivation for consumer holdings of durables across multiple quality levels our technique allows for both multiple types of durables e g porsche and bmw and relaxation of the single crossing condition on consumer tastes we provide a simple example showing how increasing transaction costs affect secondhand prices eventually for sufficiently costly transactions closing the secondhand market altogether

the value of embedded real options evidence from consumer automobile lease contracts under the common assumption of constant interest rates we show that penalties for early termination of a lease are often structured in such a way that the cancellation option embedded in consumer automotive leases has little value furthermore our estimates drawn from a sample of three popular car models over 1990 to 2000 indicate that the stand alone value of the lease end purchase option is on average about 16 of the market value of underlying used vehicles or about 1 462 per contract finally we examine the sensitivity of our option value estimates to model parameters and default risk recent years have witnessed a dramatic growth in the leasing of automobiles for instance overall industry sales data indicate that about a third of the new vehicles and trucks sold in the united states are leased hendel and lizzeri 2002 and miller 1995 and the federal reserve board survey of family finances reports that the use of leased vehicles by individuals nonbusiness consumers has risen from 2 9 to 5 8 over the 1992 to 2001 period azicorbe kennickell and moore 2003 consumer automobile lease contracts for new cars often include two embedded options that are not associated with a typical debt contract the first is a cancellation option that allows the lessee to terminate the lease early the second is a european call option which gives the lessee the right but not the obligation to purchase the leased used vehicle at the scheduled termination of the lease at a predetermined exercise price both of these options are simple examples of real options because the asset underlying these options is a used car that is a real asset however these options constitute a special case of real options since they are embedded in the lease contract which is a financial credit instrument theoretical analyses of lease contracts show that the cancellation option is quite valuable schallheim and mcconnell 1985 with respect to the purchase option hendel and lizzeri 2002 argue that they can play an important role in

leasing lemons and buybacks in his seminal article of 1970 akerlof argued that the used car market is not efficient because adverse selection causes too little trade we construct a competitive model of the new and used car markets and investigate the relationship between new car leasing and adverse selection our analysis yields a number of interesting results including that new car leasing reduces the adverse selection problem and that buybacks also increase efficiency in the secondhand market we also discuss alternative explanations for new car leasing and an explanation for the growth in new car leasing during the last fifteen years copyright 2003 by the rand corporation

the cyclical behavior of prices and quantities the case of the automobile market abstract this paper aims at understanding the joint behavior of prices and quantities in a particular market it examines whether we can find decision problems for suppliers and buyers together with a market structure which are consistent with observed price and quantity series because of the homogeneity of the product and the quality of the data we study the automobile market we conclude that the behavior of prices is inconsistent with simple market structures prices appear to be too sticky we then consider potential explanations none appears completely satisfactory in particular costs of changing prices do not explain the joint behavior of prices and quantities

foundations of dynamic monopoly and the coase conjecture subgame perfect equilibria are characterized for a market in which the seller quotes a price each period assume zero costs positive interest rate continuum of buyers and some technical conditions if buyers valuations are positive then equilibrium is unique buyers strategies are stationary and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere otherwise a continuum of stationary equilibria can exist but at most one with analytic strategies coase s conjecture is verified for stationary strategies reducing the period length drives all prices to zero or the least valuation connections to bargaining models are described journal qf economic literature classification

competition in durable goods markets the strategic consequences of leasing and selling in marketing durable goods manufacturers use varying degrees of leasing and selling to consumers e g cars photo copiers personal computers airplanes etc the question that this raises is whether the distinction between leases and sales is simply one of price or whether the proportion of leases and sales effects a firm s ability to compete in the market in this paper we use two approaches to argue that leasing and selling create strategic consequences that extend beyond prices first we develop a stylized theoretical model that shows that the optimal proportion of leases and sales depends on the competitiveness of the market and on the inherent reliability of the firm s product and second we find support for the implications of our theoretical model with data from the automobile industry the u s automobile industry has seen a large increase in leasing over the last five years however the extent to which leasing has been embraced varies widely across manufacturers for example in 1993 the sport utility segment had the following lease percentages ford explorer 29 jeep grand cherokee 24 toyota 4 runner 11 and chevrolet blazer 9 in addition manufacturers often vary lease percentages across models for example in 1993 ford leased 22 of its crown victoria model 35 of its taurus model and 42 of its probe model a popular argument for why we see these differences is that higher priced cars are leased more often because leasing makes them more affordable however this rationale is not compelling in the face of our data for example the ford probe was priced significantly lower than the crown victoria and yet it was leased almost twice as often to develop a better understanding of why we observe differences in the proportion of leasing we develop a two period model of a duopoly in which each manufacturer chooses its optimal quantity and the fraction of units it wants to lease we find that in equilibrium neither firm leases all its units either they use a mix of leasing and selling or they use only selling our analysis suggests that the fraction of leased cars decreases as the manufacturers products become more similar and the competition between them increases the intuition for this result is that a higher fraction of leases puts the firm at a competitive disadvantage in the future this occurs because unlike firms that sell their product firms that lease are at a price disadvantage another important finding in this paper is that the extent of leasing chosen by a manufacturer depends on the reliability of its product in particular all else being equal the lower a product s reliability the lower its proportion of leases within the context of the automobile industry this suggests that more expensive cars may be leased more often because they are of higher quality and not necessarily because they are more expensive finally we test the implications of our theoretical model with data from the u s automobile market in particular for 1993 model year cars we develop a measure of reliability using data from consumer reports in addition we develop a measure of the extent of competition in each segment of the automobile market we support our hypotheses by finding that the extent to which a car model is leased depends strongly on its predicted reliability and on the competitive intensity within the segment

consumer durables and inertial behaviour estimation and aggregation of s s rules for automobile purchases the s s model originally introduced in the study of inventories see arrow et al 1951 scarf 1959 has recently received renewed attention both in the durable consumption and in the investment and labour demand literatures caballero 1993 for instance appeals to these type of models to explain the time series properties of durable expenditure and in particular the persistence or slow adjustment of such a variable in this paper i model the purchase behaviour of automobiles by u s households as an s s rule i estimate a flexible specification of such a rule using a large microeconomic data set and study some of the aggregate implications of this type of inertial behaviour the paper is one of the first attempts at estimating directly the parameters of an s s rule using micro data because of this some of the methodological issues concerning the specification and the estimation of s s rules are relevant for many potential applications furthermore the paper is one of the first to discuss and quantify the aggregate implications of an s s rule estimated on micro data in the presence of non convex transaction costs a full and consistent characterization of individual behaviour is very hard and typically requires strong restrictions grossman and laroque 1991 prove that an s s rule is optimal for a consumption and investment problem under very special circumstances some of their results were extended by eberly 1991 and beaulieu 1993a b eberly 1991 in particular has derived some closed form solutions for durable consumption in the presence of transaction costs while caballero and engel 1994 construct a model of investment where an s s rule is optimal the main problem with these theoretical results is that it is only possible to show optimality of s s rules under very stringent conditions in particular a necessary condition to derive them is that the optimization problem faced by an individual consumer can be reduced to a problem with a single state variable unfortunately as pointed out by bar ilan and blinder 1992 even simple generalizations are extremely difficult to analyse

cyclic pricing by a durable goods monopolist in the model of this paper a monopoly seller of a durable good holds periodic sales as a means of price discrimination a new cohort of consumers enters the market in each period interested in purchasing the good either immediately or after a delay within each cohort consumers vary in their tastes for the good under broad conditions the seller will vary the price over time in most periods he will charge a price just low enough to sell immediately to consumers with a high willingness to pay periodically however he will drop the price far enough to sell to an accumulated group of consumers with a low willingness to pay

on the specification of structure performance relationships a comment abstract sawyer 1982 has argued that conventional specifications of structure performance relationships are based on conflicting theoretical approaches and that simultaneous equation estimation of such relationships is not appropriate this paper however defends the conventional wisdom by employing a simple integration of the alternative approaches and argues that simultaneous equation estimation techniques may well have a useful role to play

equilibrium in a durable goods market with lumpy adjustment abstract durable goods are an important component of the business cycle equilibrium models of durable goods markets are made difficult by the lumpy nature of individual purchases we show that a straightforward approximation of the distribution of durable goods holdings gives rise to a tractable equilibrium model we analyze the case of competition as well as that of a monopoly producer

what has been learned about labor supply in the past twenty years the main advance in the study of labor supply in the past 20 years has come in recognizing and interpreting the variety of different labor supply functions that coexist in the empirical literature a crucial theoretical distinction with important empirical payoff is that between labor supply choices at the extensive margin i e labor force participation and employment choices and choices at the intensive margin i e choices about hours of work or weeks of work for workers another important distinction is the one between a descriptive labor supply function and a structural supply function that can be the basis for out of sample policy investigations concerning responses to tax and welfare programs and evaluations of welfare losses a full understanding of the participation hours dichotomy leads to an appreciation of the importance of the problem of selection bias what is the wage to impute to a nonworking person these distinctions are a legacy of the research conducted on labor supply over the past 20 years many important empirical questions have been addressed i how strong are the effects of taxes welfare and transfer programs on labor supply ii how important is intertemporal substitution can life cycle labor supply models explain business cycle labor supply behavior iii has the consensus view of the 1960 s of high labor supply elasticities for married women and low labor supply elasticities for married men held up all of the empirical evidence assembled on labor supply must be called into question in the light of important research on the basic quality of the data conducted by analysts at the university of michigan i discuss this evidence in a concluding section except for my discussion of measurement issues i focus only on the major discoveries about which a general consensus has emerged

an economic theory of planned obsolescence planned obsolescence is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases however rational customers will pay for only the present value of the future services of a product therefore profit maximization seemingly implies producing any given flow of services as cheaply as possible with production involving efficient useful lives this paper shows why this analysis is incomplete and therefore incorrect monopolists are shown to desire uneconomically short useful lives for their goods oligopolists have the monopolist s incentive for short lives as well as a second incentive that may either increase or decrease their chosen durability however oligopolists can generally gain by colluding to reduce durability and increase rentals relative to sales some evidence is presented that appears to be generally consistent with the predictions of the theory

concurrent renting and selling in a durable goods monopoly under threat of entry this article analyzes the choice of contract sales or rental of a durable goods monopolist facing a threat of future entry although in the absence of such a threat a monopolist would prefer to rent his entire output we show that the threat of entry alters that preference there is an optimal preentry contract mix involving both rental and sales if both firms behave as cournot duopolists after entry the optimal choice of preentry contracts enables the erstwhile monopolist to gain the same profits as he would if he behaved as a von stackelberg leader

the term structure of lease rates with endogenous default triggers and tenant capital structure theory and evidence this paper focuses on the defaultable lease rate term structure with endogenous default we combine the competitive lease market argument proposed by grenadier 1996 and the endogenous default structural model proposed by leland and toft 1996 to examine the interaction between the lessee s capital structure and the equilibrium lease rate under this framework determining the lease rate is a simultaneous equation problem that captures the tradeofi between debt and lease flnancing using data on 2 482 real estate lease transactions we empirically conflrm the predictions derived from the numerical analysis of the model

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

the marginal cost of public funds hours of work versus labor force participation this paper extends the theory and measurement of the marginal cost of public funds mcf to account for labor force participation responses our work is motivated by the emerging consensus in the empirical literature that extensive participation responses are more important than intensive hours of work responses in the modelling of extensive responses we argue that it is crucial to account for the presence of non convexities created by fixed work costs in a non convex framework tax and transfer reforms give rise to discrete participation responses generating first order effects on government revenue these revenue effects make the marginal cost of funds higher and we show numerically that the implications for mcf tend to be substantial

asymmetric substitutability theory and some applications economists usually describe goods as being either gross complements or gross substitutes yet what is less known is that one good may be a gross substitute for a second good while the second good is a gross complement to the first good this paper shows the existence of asymmetric gross substitutability and shows some potential examples and applications

durable goods oligopoly with secondary markets the case of automobiles we study the effects of durability and secondary markets on equilibrium firm behavior in the car market we construct a dynamic oligopoly model of a differentiated product market to incorporate the equilibrium production dynamics that arise from the durability of the goods and their active trade in secondary markets we derive an econometric model and estimate its parameters using data from the automobile industry over a 20 year period our estimates are used to provide a measure of the competitive importance of the secondary market

comment on the specification of structure performance relationships abstract this paper contains a brief discussion of the limitations of reduced form estimation as a technique for testing models of industrial organization it also reviews methodologies by which empirical models of industrial organization can be derived from economic theory and concludes that models developed by reference to the literature should not be considered invalid simply because they are not given a formal mathematical presentation

market structure and price cost margins in a paper that has become a standard reference in the structure conductperformance approach to industrial economics cowling and waterson 1976 developed a theoretical rationale for expecting industry profitability to be positively correlated with the level of concentration their model based on a simple algebraic description of oligopoly behaviour has been interpreted as providing a justification for the common empirical practice of cross industry regression analysis of price cost margins in terms of concentration levels in the present paper we show that on further examination this model implies a joint determination of margins and concentration this provides some interesting comparative static results of relevance to inter industry differences in concentration levels equally however it leads to various cautionary insights concerning the meaning of price cost margin versus concentration regressions

asset financing with credit risk abstract this paper develops a model for the unified valuation of all forms of real asset financing such as bank loans leases securitization vehicles and credit guarantees secured by assets that generate a stochastic service flow to the operator or a rental stream to the lessor and depreciate over a finite economic life to their scrap value examples include mobile equipment such as aircraft railroad equipment ships trucks and trailers as well as energy generation assets heavy factory equipment and construction equipment in the event of obligor default after a repossession delay and incurring costs of repossession maintenance re marketing and re deployment the lender repossesses the asset and sells it on the secondary market and is thus subject to the risk of decline in the market value of the asset the model we develop in this paper treats all forms of asset financing in a unified fashion as contingent claims on the collateral asset and the credit of the borrower as an application we estimate the collateral asset model on historical secondary market data for aircraft values and calibrate the financing model to the enhanced equipment trust certificates eetcs issued in 2007 by continental airlines and secured by a fleet of new aircraft we then apply the calibrated model to value private market financing including bank loans leases and credit guarantees consistently with the capital market financing and assess the impact of repossession delays on credit spreads this analysis leads to a policy insight suggesting that bankruptcy laws limiting asset repossession delays lead to lower costs of asset financing

new car sales and used car stocks a model of the automobile market this article develops a short run general equilibrium model of the automobile market by combining a discrete choice model of consumer automobile demand with simple models of new automobile production and used vehicle scrappage the theoretical model allows an unlimited degree of heterogeneity of both consumers and automobiles with equilibrium defined as aggregate demand equal to supply for every vehicle type econometric estimates of the scrappage and demand functions are then used to create a simulation model of the automobile market which is used to provide forecasts of automobile sales stocks and scrappage for the 1978 1990 period

a theory of finitely durable goods monopoly with used goods market and transaction costs we construct a dynamic game to model a monopoly of finitely durable goods the solution concept is markov perfect equilibria with general equilibria embedded in every time period our model is flexible enough to simultaneously explain or accommodate many commonly observed phenomena or stylized facts such as concurrent leasing and selling active secondary markets for used goods heterogeneous consumers endogenous consumption patterns depreciation an infinite time horizon and nontrivial transaction costs within our model consumers have incentives to segment themselves into various consumption classes according to their willingness to pay and nontrivial transaction costs to sell used goods put strong constraints on consumers consumption sequences in time as a direct consequence of the finite durability the market power of the monopolist remains intact leasing manifests itself as a facilitator of price discrimination by debundling the durable good into new and used portions that are naturally bundled together under outright sales the concurrent leasing and selling reflects the degree of the comparative advantage the monopolist has over consumers in disposing used goods this comparative advantage which is partially exploited by the monopolist and partially shared by the consumers provides a sufficient mechanism to gain pareto improvement on the market

turnover of used durables in a stationary equilibrium are older goods traded more this paper develops a dynamic model with transaction costs to determine the equilibrium resale pattern in a market for a durable good the key result is that the probability of resale is nonmonotonic in the age of the good trade volume is relatively low in the very beginning and in the middle of a good s life this result helps explain observed variations of resale rates across vintages for the u s market of used cars

the timing of sales this paper presents a model of intertemporal price discrimination a fixed number of sellers produce a homogeneous good consumers with different preferences enter the market in each period and leave when they make a purchase the sellers typically vary their prices over time charging a high price in most periods but occasionally cutting the price to sell to a large group of customers with a low reservation price in some equilibria all stores lower their price at the same time and to the same level

balladurette and juppette a discrete analysis of scrapping subsidies this paper studies the effects of subsidies on durable goods markets in particular we focus on a recent policy in france in which the governments of balladur and juppe subsidized the replacement of old cars with new ones to study this policy we construct a dynamic stochastic discrete choice model of car ownership at the household level the resulting decision rules and equilibrium conditions are used to estimate the underlying parameters of the model using aggregate data these policy functions are used to evaluate the short and long run effects of the french policies we find that these policies do stimulate the automobile sector in the short run but through the induced changes in the cross sectional distribution of car ages create the basis for subsequent low activity further while these policies increase government revenues in the short run revenues in the long run are lower relative to a baseline without intervention

selling and leasing strategies for durable goods with complementary products it has been recognized that when a durable goods manufacturer sells its output it has an incentive to produce at a rate that will drive down the market price of the product over time because anticipation of declining prices makes consumers less willing to invest in owning the durable good selling can be self defeating for the manufacturer if the manufacturer instead leases the product it can eliminate its own incentive to decrease the price over time which allows it to extract larger rents from consumers in this paper we investigate how a durable goods manufacturer s choice between leasing and selling is affected by a complementary product that is produced by an independent firm we show that a durable goods manufacturer that leases its product has an incentive to increase prices by limiting the availability of the product in response to the availability of a complement because this potential for opportunistic behavior discourages output of the complement leasing can also be problematic as a result the durable goods manufacturer faces a trade off between leasing which commits the manufacturer to not overproduce and selling which commits it to not underproduce our contribution is to identify this trade off and show how a durable goods manufacturer can use a combination of leasing and selling to balance its strategic commitment across both its own market as well as the complementary market

adverse selection in durable goods markets we present a dynamic model of adverse selection to examine the interactions between new and used goods markets we find that the used market never shuts down the volume of trade can be large and distortions are lower than previously thought new cars prices can be higher under adverse selection than in its absence an extension to several brands that differ in reliability leads to testable predictions of the effects of adverse selection unreliable brands have steeper price declines and lower volumes of trade we contrast these predictions with those of a model where brands physically depreciate at different rates

durable goods monopoly with entry of new consumers this paper analyzes a model of a dynamic monopolist who produces at constant unit cost each period a new cohort of consumers enters the market each entering cohort is identical consumers within a cohort have different tastes for the good my main results are if players are sufficiently patient any positive average profit less than the maximum feasible level can be attained in a subgame perfect equilibrium in the subset of subgame perfect equilibria in which players use stationary strategies the seller cannot make sales at prices significantly greater than the lowest willingness to pay when period length goes to zero and the seller attains the maximum profit when commitment is feasible by charging the same static monopoly price in every period this paper analyzes a model of a dynamic monopolist who operates in a market in which there is a regular flow of new consumers the seller produces a durable good at constant unit cost each period a new cohort of consumers enters the market consumers wish to buy exactly one unit of the item but are willing to wait resales are not allowed each entering cohort is identical

the welfare cost of factor taxation in a perfect foresight model this paper examines the marginal efficiency cost of various factor taxes in a dynamic general equilibrium model the au thor solves for the excess burden of anticipated and unanticipated t emporary and permanent tax policies using a range of estimates for taste and technology parameters he finds excess burdens larger than those indicated by previous studies that use static models these exc ess burdens are sensitive to parameter values and timing however th e rankings of alternative tax policies turn out to be insensitive to structural parameter values copyright 1987 by university of chicago press

a model for the determination of fair premiums on lease cancellation insurance policies lease cancellation insurance protects the lessor against early termination of a cancellable operating lease this paper presents a contingent claims model for determining the fair premium for this type of insurance policy comparative statics are considered and some numerical examples are presented to illustrate the model among other things the insurance premium is sensitive to the expected rate of economic depreciation of the leased asset and to the leased asset s systematic and nonsystematic risk

marginal welfare cost calculations differential analysis vs balanced budget analysis abstract in a differential analysis tax revenue collections are held constant in a balanced budget analysis the spending level is changed and the level of distortionary taxation is changed correspondingly here income effects are important and efficiency calculations depend chiefly on uncompensated elasticities unless government exhaustive expenditure is assumed to substitute closely for cash a small scale computational general equilibrium model is constructed and differential and balanced budget experiments are performed results show that marginal welfare costs calculated from balanced budget experiments can be negative when labor supply functions are backward bending interactions among parameter values and efficiency costs are explored

adjustment of consumers durables stocks evidence from automobile purchases this paper tests an optimal s s rule in household durable purchases and examines directly the resulting aggregate expenditure dynamics the observed decision rule responds to income uncertainty and growth as predicted by an s s model resulting from transactions costs tests against liquidity constraints find that about half the households purchase according to an optimal s s rule aggregating the s s rule over households produces a cross section distribution of durables holdings the empirical distribution is similar to that predicted theoretically as is its response to aggregate shocks furthermore simulations of aggregate expenditure based on the household distribution exhibit dynamics consistent with those observed in the 1980s

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through

on the specification of structure performance relationships this paper argues that most estimated structure profitability equations in industrial economics have not been derived from a single coherent view of the behaviour of firms the independent variables in such equations have often been derived on the basis of a literature search and by appeal to conflicting approaches e g constrained and unconstrained profit maximisation the use of a coherent approach indicates that structure performance equations are likely to be highly non linear and that simultaneous equation estimation is neither required nor appropriate in some cases single equation estimation is adequate and in other cases reduced form equations are needed

storable good monopoly the role of commitment we study dynamic monopoly pricing of storable goods in an environment where demand changes over time the literature on durables has focused on incentives to delay purchases our analysis focuses on a different intertemporal demand incentive for consumers the key force on the consumer side is advance purchases or stockpiling this stockpiling motive can be present in the case of standard durables as well in environments unmodeled in the prior literature we show that if the monopolist cannot commit then prices are higher in all periods and social welfare is lower than in the case in which the monopolist can commit this is in contrast with the durable goods analysis in the literature on the coase conjecture