Is Leasing Greener than Selling?

17 Pages Posted: 10 Jun 2011

See all articles by Vishal Agrawal

Vishal Agrawal

Georgetown University - McDonough School of Business

Mark Ferguson

University of South Carolina - Department of Management Science; Georgia Institute of Technology

L. Beril Toktay

Georgia Institute of Technology - Sustainability

Valerie Thomas

Georgia Institute of Technology - The H. Milton Stewart School of Industrial & Systems Engineering (ISyE)

Date Written: June 3, 2011

Abstract

Based on the proposition that leasing is environmentally superior to selling, some firms have adopted a leasing strategy and others promote their existing leasing programs as environmentally superior to "green" their image. The argument is that since a leasing firm retains ownership of the off-lease units, it has an incentive to remarket them or invest in designing a more durable product, resulting in a lower volume of new production and disposal. However, leasing might be environmentally inferior due to the direct control the firm has over the off-lease products, which may prompt the firm to remove them from the market to avoid cannibalizing the demand for new products. Motivated by these issues, we adopt a life-cycle environmental impact perspective and analytically investigate if leasing can be both more profitable and have a lower total environmental impact. We find that leasing can be environmentally worse despite remarketing all off-lease products, and greener than selling despite the mid-life removal of off-lease products. Our analysis also provides insights for environmental groups and entities that use different approaches to improve the environmental performance of business practices. We show that imposing disposal fees or encouraging remanufacturing, under some conditions, can actually lead to higher environmental impact. We also identify when educating consumers to be more environmentally conscious can improve the relative environmental performance of leasing.

Keywords: Durable goods, sustainable operations, green marketing, environment

Suggested Citation

Agrawal, Vishal and Ferguson, Mark and Toktay, L. Beril and Thomas, Valerie, Is Leasing Greener than Selling? (June 3, 2011). Available at SSRN: https://ssrn.com/abstract=1857535 or http://dx.doi.org/10.2139/ssrn.1857535

Vishal Agrawal (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street NW
Washington, DC 20057
United States

Mark Ferguson

University of South Carolina - Department of Management Science ( email )

United States

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

L. Beril Toktay

Georgia Institute of Technology - Sustainability ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Valerie Thomas

Georgia Institute of Technology - The H. Milton Stewart School of Industrial & Systems Engineering (ISyE) ( email )

765 Ferst Drive
Atlanta, GA 30332-0205
United States

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