Lemons and Leases in the Used Business Aircraft Market

58 Pages Posted: 28 Apr 2003

See all articles by Thomas W. Gilligan

Thomas W. Gilligan

University of Southern California - Marshall School of Business

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Date Written: April 2003

Abstract

Given adverse selection, durable goods that trade infrequently depreciate quickly. Consistent with this prediction I find an inverse relationship between depreciation and trading volume for less reliable brands of used business aircraft. Additionally, recent theoretical analyses suggest that leasing, by increasing the average quality of used goods, may reduce adverse selection in durable goods markets. Indeed, I find a direct relationship between depreciation and trading volume for aircraft models with relatively high lease rates. Together these findings suggest that adverse selection is a prominent feature of the contemporary used business aircraft market and that leasing mitigates the consequences of adverse selection.

Keywords: Industrial Organization, Adverse Selection, Durable Goods, Leasing, Business Aircraft

JEL Classification: C23, C33, D82, L15, L62

Suggested Citation

Gilligan, Thomas W., Lemons and Leases in the Used Business Aircraft Market (April 2003). Available at SSRN: https://ssrn.com/abstract=398360 or http://dx.doi.org/10.2139/ssrn.398360

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