There has been substantial growth in rates of new-car leasing over the last few decades. Building on recent theoretical research, we construct a model of the leasing decision in which leasing mitigates adverse selection and reduces transaction costs, but moral hazard limits its use. In our...

A number of recent papers have analyzed leasing in the new-car market as a response to the adverse-selection problem in the used-car market originally explored in the seminal 1970 paper by George Akerlof. In this paper we consider a model characterized by both adverse selection, as in these...