Equilibrium Leasing Contracts under Double-sided
Asymmetric Information
Thomas Chemmanur*
and
An Yan**
Current Version: March 2000
* Finance Department, Fulton Hall 440, Carroll School of Management, Boston College,
Chestnut Hill, MA 02467, Tel: (617) 552-3980, Fax: (617) 552 0431, email:
[email protected].
** Department of Economics, Boston College, Chestnut Hill, MA 02467, Tel: (617) 552-
8703, Fax (617) 552 2308, email: [email protected].
Thomas Chemmanur acknowledges support from Boston College Faculty Research
Summer Grant. For helpful comments or discussions, we thank Ingela Alger, Richard
Arnott, Paolo Fulghieri, Fabio Schiantarelli, and seminar participants at Boston College
and INSEAD. We alone are responsible for any errors or omissions.
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glhu lq rwkhu glphqvlrqv vxfk dv wkhlu lqwhqvlw| ri xvlqj wkh fdslwdo jrrg/ dqg wkhlu ghjuhh ri
ulvn0dyhuvlrq1 Dq lqwhuhvwlqj dvshfw ri rxu prgho lv wkdw/ lq htxloleulxp/ ohdvlqj fr0h{lvwhg zlwk
d vdohv frqwudfw lq vrph fdvhv> lw zdv wkh vroh nlqg ri qdqflqj frqwudfw lq rwkhu fdvhv> dqg wkh
vdohv frqwudfw hphujhg dv wkh rqo| nlqg ri frqwudfwv rhuhg lq |hw rwkhu vhwwlqjv1 Zh ghyhorshg
wkh lpsolfdwlrqv ri rxu prgho iru wkh ohdvh0yhuvxv0vhoo ghflvlrq/ wkh vlwxdwlrqv xqghu zklfk ydulrxv
ohdvlqj frqwudfw surylvlrqv duh dssursuldwh/ dqg iru wkh uhodwlyh pdjqlwxghv ri vdohv sulfhv dqg wkh
ohdvlqj frvwv iru ohdvhv zlwk glhuhqw frqwudfwxdo surylvlrqv1
5<
+iuihi?Uit
Dqj/ M1 dqg Shwhuvrq/ S1 S1/ 4<;7/ _Wkh Ohdvlqj Sx}}oh/% Mrxuqdo ri Ilqdqfh 6</ 43880981
Edufod| P1 M1 dqg Vplwk F1 Z1/ 4<<8/ _Wkh Sulrulw| Vwuxfwxuh ri Frusrudwh Oldelolwlhv/%
Mrxuqdo ri Ilqdqfh/ ;<<0<491
Edufod| P1 M1 dqg Vplwk F1 Z1/ 4<<8/ _Wkh Ghwhuplqdqwv ri Frusrudwh Ohyhudjh dqg Glyl0
ghqg Srolflhv/% Mrxuqdo ri Dssolhg Frusrudwh Ilqdqfh :/ 704<1
Ed|ohvv/ P1 H1 dqg Glow}/ G1 M1/ 4<;;/ _Ghew Fdsdflw|/ Fdslwdo Ohdvlqj/ dqg Dowhuqdwlyh
Ghew Lqvwuxphqwv/% Dnurq Exvlqhvv dqg Hfrqrplf Uhylhz 4</ ::0;;1
Euhdoh|/ U1 dqg P|huv/ V1/ 4<;7/ Sulqflsohv ri Frusrudwh Ilqdqfh +PfJudz Kloo/ Qhz \run/
Q\,/ 95<0871
Exorz/ Mhuhp|1/ 4<;9/ _Dq Hfrqrplf Wkhru| ri Sodqqhg Revrohvfhqfh/% Txduwhuo| Mrxuqdo
ri Hfrqrplfv 434/ :5<0:7<1
Ghvdl/ S dqg Sxurklw G1/4<<;/ _Ohdvlqj dqg Vhoolqj= Rswlpdo Pdunhwlqj Vwudwhjlhv iru d
Gxudeoh Jrrg Ilup/% iruwkfrplqj Pdqdjhphqw Vflhqfh1
Judkdp/ M1 U1/ Ohpprq/ P1 O1 dqg Vfkdookhlp/ M1 V1/ 4<<;/ _Ghew/ Ohdvhv/ Wd{hv/ dqg wkh
Hqgrjhqhlw| ri Frusrudwh Wd{ Vwdwxv/% Mrxuqdo ri Ilqdqfh 86/ 46404951
Juhqdglhu/ V1/ 4<<8/ _Ydoxlqj Ohdvh Frqwudfwv D Uhdo0Rswlrqv Dssurdfk/% Mrxuqdo ri Il0
qdqfldo Hfrqrplfv 6;/ 5<:06641
Juhqdglhu/ V1/ 4<<9/ _Ohdvlqj dqg Fuhglw Ulvn/% Mrxuqdo ri Ilqdqfldo Hfrqrplfv 75/ 6660871
Jxkd/ U1/ dqg Zdogpdq/ P1/ 4<<9/ _Ohdvlqj Vroyhv wkh Ohprqv Sureohp/% Plphr Fruqhoo
Xqlyhuvlw|1
Khqgho/ L1 dqg Ol}}hul/ D1/ 4<<;/ _Wkh Uroh ri Ohdvlqj Xqghu Dgyhuvh Vhohfwlrq/% Zrunlqj
Sdshu 98::/ QEHU1
Nulvkqdq/ V1 Y1 dqg Pr|hu/ F1 U1/ 4<<7/ _Edqnuxswf| Frvwv dqg wkh Ilqdqfldo Ohdvlqj
Ghflvlrq/% Ilqdqfldo Pdqdjhphqw 56/ 640751
Ohzhoohq/ Z1 J1/ Orqj/ P1 V1 dqg PfFrqqhoo/ M1 M1/ 4<:9/ _Dvvhw Ohdvlqj lq Frpshwlwlyh
Fdslwdo Pdunhwv/% Mrxuqdo ri Ilqdqfh 64/ :6:0<;1
PfFrqqhoo/ M1 dqg Vfkdookhlp/ M1 V1/ 4<;6/ _Ydoxdwlrq ri Dvvhw Ohdvlqj Frqwudfwv/% Mrxuqdo
ri Ilqdqfldo Hfrqrplfv 45/ 56:0941
Ploohu/ P1 dqg Xswrq/ F1/ 4<:9/ _Ohdvlqj/ Ex|lqj/ dqg wkh Frvw ri Fdslwdo Vhuylfhv/% Mrxuqdo
ri Ilqdqfh 64/ :940;91
P|huv/ V1/ Gloo/ G1 dqg Edxwlvwd/ D1/ 4<:9/ _Ydoxdwlrq ri Ilqdqfldo Ohdvh Frqwudfw/% Mrxuqdo
ri Ilqdqfh 64/ :<<0;531
Vfkdookhlp/ M1 F1/ Mrkqvrq/ U1 H1/ Ohdvh/ U1 F1 dqg PfFrqqhoo/ M1/ 4<;:/ _Wkh Ghwhuplqdqwv
ri |lhogv rq Ilqdqfldo Ohdvlqj Frqwudfwv/% Mrxuqdo ri Ilqdqfldo Hfrqrplfv 4</ 7809:1
Vkdush/ V1 D1 dqg Qjx|hq/ K1 K1/ 4<<8/ _Fdslwdo Pdunhw Lpshuihfwlrq dqg wkh Lqyhqwlyh wr
Ohdvh/% Mrxuqdo ri Ilqdqfldo Hfrqrplfv 6</ 5:405<71
63
Vplwk/ F1 Z1 dqg Zdnhpdq/ O1 P1/ 4<;8/ _Ghwhuplqdqwv ri Frusrudwh Ohdvlqj Srolf|/%
Mrxuqdo ri Ilqdqfh 73/ ;<80<3;1
Zdogpdq/ P1/ 4<<9e/ _Holplqdwlqj wkh Pdunhw iru Vhfrqgkdqg Jrrgv= Dq Dowhuqdwlyh
H{sodqdwlrq iru Ohdvlqj/% Mrxuqdo ri Odz dqg Hfrqrplfv [O/ 940<51
64
Dsshqgl{
Surri ri Sursrvlwlrq 41
Lq wklv surri/ zh zloo uvw ghwhuplqh wkh htxloleulxp sulfhv iru
hdfk frqwudfw dqg wkhq vkrz wkdw d vhsdudwlqj htxloleulxp h{lvwv zkhq i i4/ ! !4 dqg 4 =
Dw wlph 3/ wkh pdqxidfwxuhu pd{lpl}hv klv h{shfwhg surwv edvhg rq klv rzq w|sh dqg klv
eholhi derxw wkh hqwuhsuhqhxuv1 Wkh w|sh J pdqxidfwxuhu eholhyhv wkdw/ e| klv frqwudfw ghvljq/ wkh
w|sh O hqwuhsuhqhxu zloo dffhsw wkh orqj0whup ohdvh frqwudfw dqg h{huflvh wkh ex| rswlrq dw w@5/
dqg wkdw wkh w|sh K hqwuhsuhqhxu zloo dffhsw wkh vkruw0whup frqwudfw dqg qrw uhqhz wkh frqwudfw
dw w@41 Kh/ wkxv/ pd{lpl}hv=
!P . +4 !,+Q . S , . !+n{ . n5 5 {,>
+D4,
vxemhfw wr frqvwudlqw +<,/ +43,/ +44,/ +45,/ +46,/ +47,/ +48, dqg +49,1 Wkh odvw whup lq +D4, lv wkh
uhvlgxdo ydoxh ri wkh uhwxuqhg htxlsphqw wr wkh pdqxidfwxuhu1
Wkh w|sh E pdqxidfwxuhu/ nqrzlqj wkdw erwk w|shv ri hqwuhsuhqhxuv zloo wdnh wkh vdohv frqwudfw/
pd{lpl}hv V vxemhfw wr frqvwudlqw +4;, dqg +4:,1
41 LU frqvwudlqw +47, dqg +48, duh uhgxqgdqw ehfdxvh wkh| duh lpsolflwo| lpsolhg e| frqvwudlqw
+44,/ +45, dqg +46,1
51 Frqvwudlqw +46, lv qrw elqglqj ehfdxvh li vr/ zh fdq vkrz wkdw !P . +4 !,Q { | . +4 !,+n{ |,= Krzhyhu/ zh nqrz iurp frqvwudlqw +<, dqg +4:, wkdw !P . +4 !,Q i { . i n{ 5| !i n{ ? { | . +4 !,+n{ |, vlqfh i i4 1
61 Frqvwudlqw +<, pxvw krog htxdolw| ehfdxvh rwkhuzlvh wkhuh h{lvwv d qhz frqwudfw iP > Q > U> S j
zlwk P @ P . dqg Q @ Q . zkhuh { | P / zklfk zrxog jhqhudwh d kljkhu sd|r wr
wkh w|sh J pdqxidfwxuhu wkdq wkh rog frqwudfw iP> Q> U> S j dqg |lhog wkh vdph fdvk rz wr wkh
w|sh E pdqxidfwxuhu15;
Dv d frqvhtxhqfh/ frqvwudlqw +4;, lv dxwrpdwlfdoo| vdwlvhg1 Iroorzlqj
wkh vdph orjlf/ zh fdq vkrz wkdw V @ i { . in{ 5|1
2H
N?_ih |i ?i UL?|h@U| ti||?}c @** |i ?i^@*|) @?_ i^@*|) UL?t|h@?|t @hi t|** t@|t€i_
65
71 Wkh lqhtxdolw| frqvwudlqwv rq S duh=
S n{ . n5 { 5fO 5| +Q P, @ W4 >
S n5 { fO | @ W5 =
+D5,
Ehfdxvh Q P n{ fO |/ +D5, lpsolhv W4 W5 > dqg ixuwkhu S W5 @ n5 { fO |=
Khqfh/ wkh w|sh J pdqxidfwxuhu zloo fkrrvh S @ n5 { fO | wr pd{lpl}h wkh h{shfwhg surw1
Qrz wkh htxloleulxp sulfhv duh wkdw V @ i {.i n{5|/ S @ n5 {fO |/ U n{.n5 {5fO 5|
dqg P ) Q vdwlvi|=
!P . +4 !,Q @ i{ . i n{ 5| !i n{>
+D6,
Q P 5 ^n{ |> n{ fO |`> P 5 ^3> { |,=
Iurp +D6,/
P 5 ^o > x ` @ ^i{ . i n{ 5| !i n{ +4 !,+n{ fO |,>
+D7,
i{ . i n{ 5| !i n{ +4 !,+n{ |,`=
Lw lv hdv| wr vkrz wkdw o { |/ dqg zkhq ! !4 dqg 4 > x 3> zklfk lpsolhv wkdw wkhuh
h{lvwv dw ohdvh rqh vroxwlrq iP> Q j wr +D6,1
Surri ri sursrvlwlrq 51
Lw lv vwudljkwiruzdug wr ghulyh zlwk d olwwoh elw ri dojheud wkhvh
frpsdudwlyh vwdwlfv iurp wkh htxloleulxp sulfhv fkdudfwhul}hg lq wkh surri ri sursrvlwlrq 41
Surri ri sursrvlwlrq 61
Wkh w|sh J pdqxidfwxuhu/ xqghu wkh eholhi wkdw erwk w|shv ri
hqwuhsuhqhxuv zloo dffhsw wkh vkruw0whup ohdvlqj frqwudfw iP> Uj dqg h{huflvh wkh sxufkdvh rswlrq
dw w@4/ pd{lpl}hv klv h{shfwhg surw P . U vdwlvi|lqj wkh iroorzlqj qrq0plplfnlqj frqglwlrqv=
P . in{ V>
+D8,
U . i n{ |=
Kh vhwv wkh sulfhv wr vdwlvi| wkh iroorzlqj LU frqvwudlqwv dv zhoo=
P U . { . n{ . n5 5 { 6|>
U . n{ . n5 5 { 5|=
66
+D9,
Wkh w|sh E pd{lpl}hv klv h{shfwhg sd|r V/ vdwlvi|lqj wkh iroorzlqj LU dqg LF frqvwudlqw=
V . i { . in{ 5|>
+D:,
P . U V=
Zlwk wkh vdph orjlf surylghg lq wkh uvw surri/ zh fdq vkrz wkdw wkh htxloleulxp sulfhv duh
V @ i { . in{ 5|> P @ i { . i n{ 5| i n{ dqg U @ n{ . n5 5 { 5|1
Wkh w|sh J pdqxidfwxuhu*v h{shfwhg sd|r wkhq htxdov wr i { . i n{ 5| i n{ . n{ .
n5 5 { 5|1 E| frqwudvw/ wkh w|sh J pdqxidfwxuhu/ e| rhulqj vhsdudwlqj ohdvlqj frqwudfwv/ fdq
hduq i { . +4 !,in{ 5| . +4 !,+n5 { fO |, . !+n{ . n5 5 {,1 Wkhuhiruh/ zkhq ! !5
dqg 5 ^ 5 > 4 `/ wkh h{shfwhg sd|r wr wkh w|sh J pdqxidfwxuhu lv kljkhu iurp wkh vhsdudwlqj
htxloleulxp wkdq iurp wkh srrolqj htxloleulxp1
Surri ri sursrvlwlrq 71 Wkh pdqxidfwxuhu pxvw surylgh d vdohv frqwudfw dffhswhg e| erwk
w|shv ri hqwuhsuhqhxuv1 Wkxv wkh vdohv sulfh htxdov wr i{ . i n{ . in5 5 { 6|1
Iroorzlqj wkh vdph orjlf dv ehiruh/ wkh htxloleulxp sulfhv duh wkdw P @ { |/ U n{ .
n5 { 5fO 5|/ Q @ { . n{ fO 5| dqg S @ n5 { fO |= Wkh h{shfwhg sd|r wr wkh w|sh
J pdqxidfwxuhu wkhq lv { | . +4 !,+n{ . n5 { 5fO 5|, . !+n{ . n5 5 {,1 Zkhq i i5 /
! !6 dqg 6 / wkh srrolqj htxloleulxp zlwk rqo| d vdohv frqwudfw zrxog eh suhihuuhg e| wkh
w|sh J pdqxidfwxuhu frpsduhg zlwk wkh vhsdudwlqj htxloleulxp fkdudfwhul}hg lq sursrvlwlrq 41
Surri ri sursrvlwlrq 81
Qrz wkh eholhiv ri wkh w|sh J pdqxidfwxuhu/ jlyhq wkh frqwudfwv
rhuhg/ duh wkdw +4, wkh w|sh K hqwuhsuhqhxu zloo dffhsw wkh vkruw0whup vhuylfh ohdvh dqg uhqhz wkh
frqwudfw dw w@4> +5, wkh w|sh O hqwuhsuhqhxu zloo dffhsw wkh vkruw0whup frqwudfw zlwkrxw vhuylfh
whup dqg ex| wkh htxlsphqw dw w@41 Xqghu wkhvh eholhiv/ kh/ dw w@3/ pd{lpl}hv klv h{shfwhg
67
surw !+P5 . U5 , . +4 !,+P4 . U4 , !+5fS , vxemhfw wr wkh iroorzlqj LF frqvwudlqwv=
P4 U4 . { . n{ . n5 { 5fO P5 U5 . { . n{ . n5 {>
P5 U5 . { . n{ . n5 { P4 . { . 5|>
U4 . n{ . n5 5 { |>
+D;,
!P5 . +4 !,P4 . in{ V>
dqg LU frqvwudlqwv=
P4 U4 . { . n{ . n5 { 5fO 6|>
U4 . { . n{ . n5 { 5fO { . 5|>
P5 U5 . { . n{ . n5 { 6|>
+D<,
U5 . n{ . n5 { 5|=
Wkh w|sh E pdqxidfwxuhu pd{lpl}hv klv vdohv uhyhqxh V vxemhfw wr=
V . i { . in{ 5|>
+D43,
!+P5 . U5 , . +4 !,+P4 . U4 , !+5fS , V=
Lw lv hdv| wr vkrz xqghu wkh vdph orjlf ehiruh wkdw V @ i { . in{ 5|> U5 @ n{ . n5 { 5|>
U4 @ n{ . n5 { 5fO 5| dqg P4 @ P5 @ i{ . i n{ 5| i n{=
Wkh h{shfwhg sd|r wr wkh w|sh J pdqxidfwxuhu wkhq lv i { . in{ 5| i n{ . n{ . n5 { 5| 5fO . !+5fO 5fS ,1 Wkxv zkhq fS f / wkh w|sh J pdqxidfwxuhu fdq ehqhw iurp surylglqj
vhuylfh wr wkh kljk0pdlqwhqdqfh0frvw hqwuhsuhqhxu1
Surri ri sursrvwlrq 91 Lw lv vwudljkwiruzdug wr vkrz wkdw zkhq 7 > f fK =
Surri ri sursrvlwlrq :1 Wkh w|sh J pdqxidfwxuhu kdv wkh iroorzlqj eholhiv= +4, wkh w|sh L
hqwuhsuhqhxu zloo dffhsw vkruw0whup ohdvlqj frqwudfw zlwk olplwhg xvdjh dqg phwhulqj/ dqg ex| wkh
pdfklqh dw w@4> +5, wkh w|sh LL hqwuhsuhqhxu zloo dffhsw vkruw0whup frqwudfw zlwkrxw olplwdwlrq
rq xvdjh dqg uhqhz wkh frqwudfw dw w@41 Zlwk wkhvh eholhiv/ kh pd{lpl}hv klv h{shfwhg surw
68
!+P5 . U5 , . +4 !,+P4 . U4 p, vxemhfw wr wkh iroorzlqj LF frqvwudlqwv=
P5 U5 . o{ . on{ . on5 { P4 U4 Y . o{ . on{ . on5 {>
U4 . on{ . on5 { 5|>
P4 U4 . { . n{ . n5 { P5 U5 . { . n{ . n5 {>
+D44,
U5 . n{ . n5 { 5|>
!P5 . +4 !,P4 . in{ V>
dqg LU frqvwudlqwv=
P5 U5 . o{ . on{ . on5 { 6|>
U5 . on{ . on5 { 5|>
P4 U4 . { . n{ . n5 { 6|>
+D45,
U4 . n{ . n5 { 5|=
Wkh w|sh E pdqxidfwxuhu pd{lpl}hv klv vdohv uhyhqxh V vxemhfw wr=
V . i{ . i n{ 5|
+D46,
!+P5 . U5 , . +4 !,+P4 . U4 p, V
Xqghu wkh vdph orjlf/ wkh htxloleulxp sulfhv fdq eh ghulyhg dv wkdw U5 @ on{ . on5 { 5|/
U4 @ n{ . n5 { 5|/ V @ i { . in{ 5| dqg rwkhu sulfhv vdwlvi|=
!P5 . +4 !,P4 @ i{ . i n{ 5| in{>
3 P5 P4 Y . +U4 U5 ,>
+D47,
dqg P4 5 ^3> { |`> P5 5 ^3> o{ |`=
+D47, fdq eh ixuwkhu uhzulwwhq dv=
P4 i{ . i n{ 5| in{> dqg P5 i { . in{ 5| i n{=
+D48,
3 i { . i n{ 5| in{ {/ zklfk lpsolhv wkdw wkhuh h{lvw vroxwlrqv wr +D47,1 Zkhq p p4 /
frqvwudlqw +D46, lv dovr vdwlvhg1
69
Surri ri sursrvlwlrq ;1 Wkh w|sh J pdqxidfwxuhu pd{lpl}hv +4 !,+P5 . U5 , . !^P4 .
U4 . +4 ,Y ` !p1 Ghqh=
I4 @ { . n{ . n5 {>
I5 @ { . on{ . on5 {>
I6 @ o{ . n{ . n5 {>
I7 @ o{ . on{ . on5 {=
+D49,
Wkh LU frqvwudlqwv iru wkh hqwuhsuhqhxuv duh=
5 +I4 P5 U5 , . +4 ,+I5 P5 U5 , . +4 ,
+I6 P5 U5 , . +4 ,5 +I7 P5 U5 , 6|>
+n{ . n5 { U5 , . +4 ,+on{ . on5 { U5 , 5|>
5 X +I4 P4 U4 , . +4 ,X +I6 P4 U4 Y , . +4 ,
X +I5 P4 U4 , . +4 ,5 X +I7 P4 U4 Y , X +6|,>
X+n{ . n5 { U4 , . +4 ,X +on{ . on5 { U4 , X+5|,>
+D4:,
+D4;,
+D4<,
+D53,
zkhuh wkh h{shfwhg xwlolw| ri wkh hqwuhsuhqhxu dulvhv iurp irxu srvvleoh rxwfrphv= orz0lqwhqvlw|
lq erwk wkh uvw dqg wkh vhfrqg shulrgv/ orz0lqwhqvlw| lq wkh uvw shulrg dqg kljk0lqwhqvlw| lq
wkh vhfrqg shulrg/ kljk0lqwhqvlw| lq wkh uvw shulrg dqg orz0lqwhqvlw| lq wkh vhfrqg shulrg/ kljk0
lqwhqvlw| lq erwk shulrgv1
Wkh LF frqvwudlqwv iru wkh w|sh L dqg w|sh LL hqwuhsuhqhxu duh=
P5 U5 P4 U4 +4 ,Y>
+D54,
+n{ . n5 { U4 , . +4 ,+on{ . on5 { U4 , 5|>
+D55,
O=K=V= ri +D4<, 5 X+I4 P5 . 5|, . +4 ,X +I5 P5 . 5|,
. +4 ,X +I6 P5 . 5|, . +4 ,5 X+I7 P5 . 5|,>
6:
+D56,
X +n{ . n5 { U5 , . +4 ,X +on{ . on5 { U5 , 5|
+D57,
Wkh LF frqvwudlqw iru wkh w|sh E pdqxidfwxuhu lv=
+4 !,P5 . !^P4 . +4 ,Y ` . i n{ V=
+D58,
Wkh w|sh E pdqxidfwxuhu pd{lpl}hv V idflqj wkh iroorzlqj LF dqg LU frqvwudlqw=
i{ . i n{ V 5|>
+D59,
+4 !,+P5 . U5 , . !^P4 . U4 . +4 ,Y ` !p V=
+D5:,
Frqvwudlqw +D4:, dqg +D55, duh vdwlvhg dxwrpdwlfdoo|1 +D4;,/ +D58, dqg +D59, krog htxdolw|1
Vr grhv +D53, zkhq 45 1 Wkxv U5 U4 dqg P4 . +4 ,U4 P5 1
Frqvwudlqw +D4<, lv vdwlvhg dv zhoo li { A i{ . i n{ vlqfh +iurp +D56, dqg +D58,,=
O=K=V= ri +D4<, X+{ P5 . 5|, . +4 ,X +o{ P5 . 5|,
+D5;,
X+{ P5 . 5|, X +{ V . 5|, A X +6|,=
Ilqdoo| wkh htxloleulxp frqwudfw sulfhv duh V @ i {.in{5|> U5 @ +n{.n5 {,.+4,+on{.
on5 {, 5|/ U4 vroyhv X +n{ . n5 { U4 , . +4 ,X +on{ . on5 { U4 , @ X +5|,/ dqg iP4 > P5 > Y j
vdwlvhv=
+4 !,P5 . !^P4 . +4 ,Y ` @ i { . i n{ 5| i n{>
P4 . +4 ,Y P5 U5 U4 dqg frqvwudlqw +D56,1
Zkhq p p5 @ !4 ^+4 !,U5 . !U4 i n{`/ +D5:, lv vdwlvhg1
6;
+D5<,
Entrepreneur makes maintenance
decision for first period.
T=0
Contracting
Entrepreneur makes maintenance
decision for second period.
1
2
• Short-term lease may be terminated or renewed.
• Cash flow realized for the first period.
Entrepreneur receives additional information
about type of capital goods.
3
Cash flow realized
for the third period
• Long-term lease ends. (Entrepreneur may buy equipment if
purchase option is given in lease contract).
• Cash flow realized for the second period.
Figure 1:
Timeline