THE MICROECONOMIC FOUNDATIONS OF LEASING CONTRACTS

The problem explored in this thesis is the manner in which individuals choose among contractual forms. The scope of this dissertation will be confined however to two aspects of this very general problem. The first part of the dissertation constructs a model of contract choice for the lease-or-sale decision. The second section develops a model of contract choice centering around the costs of transferring a brand. Following a review of the literature on the lease-or-sale choice, a model of this decision is developed. This model predicts that leasing contracts will be more likely to occur when: (1) search costs to the lessor (lessee) are lowered (raised), (2) monitoring costs to the lessor or lessee are lowered, (3) risks facing the lessor or lessee are increased. The model also provides implications concerning individual behavior. For example, it is shown that fines are used more heavily by a lessor as monitoring the good returned by the lessee becomes more costly. Also it is shown that the lessee will in fact harm the good less if he is more carefully monitored by the lessor or if he is more heavily fined by the lessor. The second section of the thesis evaluates some implications of the recent divestiture which occurred in the state of Maryland. This legislation forced oil refiners who owned and operated gasoline stations in that state to: (1) choose a lease/franchise contract, (2) sell the station, or (3) close the station. A model is developed to examine the effects of costly monitoring of a brand name. Empirical tests follow this model