INFERRING THE ECONOMIC PREFERENCE OF A RENTAL VEHICLE COMPANY BY MODELING ITS DE-FLEETING PROCESS

Chuan-Hsiang Han (), Jingren Shi and Suzhou Huang
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Chuan-Hsiang Han: #x2020;Department of Quantitative Finance, National Tsing Hua University, Hsinchu, Taiwan 30013, ROC
Jingren Shi: #x2021;Research and Advanced Engineering, Ford Motor Company, Dearborn, MI 48121–2053, USA
Suzhou Huang: #x2021;Research and Advanced Engineering, Ford Motor Company, Dearborn, MI 48121–2053, USA

Annals of Financial Economics (AFE), 2016, vol. 11, issue 02, 1-12

Abstract: When a vehicle manufacturer designs a contract with a rental vehicle company, it is important for the OEM to properly understand the rental company’s economic preference. While it is usually not directly observable, the economic preference of the counter party can often be revealed indirectly through some observable market behavior. In such cases, econometric inference needs to be used. In this paper, we use the de-fleeting process of the rental vehicle company as the inferential apparatus. To this end, we first develop a model to describe the decision-making in the de-fleeting process for the rental vehicle company, based on the optimal stopping theory. We then outline an econometric procedure to estimate the model parameters. Finally, we use simulated data to illustrate how to deal with some of the technical issues that one might encounter when the procedure is applied to real data.

Keywords: Economic inference; optimal stopping theory; stochastic modeling (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1142/S2010495216500068

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