No Lease is Short Enough to Solve the Time Inconsistency Problem

Patrick DeGraba

Journal of Industrial Economics, 1994, vol. 42, issue 4, 361-74

Abstract: The author provides a model of endogenous lease duration determination in the context of the durable goods monopolist problem. He shows that infinitely many leases (per finite unit of time) are required to solve completely the time inconsistency problem, thus suggesting that leasing may not provide a practical solution. The author also provides a warning regarding the results that can be derived by exogenously setting lease durations equal to 'one period' by resolving a paradoxical result in the literature. Copyright 1994 by Blackwell Publishing Ltd.

Date: 1994
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