EconPapers    
Economics at your fingertips  
 

Financing Durable Assets

Adriano Rampini ()

No 22324, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the effect of durability on the financing of durable assets. We show that more durable assets require larger down payments of internal funds per unit of capital making them harder to finance, because durability affects the price of an asset and hence the overall financing need more than its collateral value. This insight has implications for the choice between new and used capital, technology adoption, and the rent versus buy decision. Constrained borrowers purchase used assets which are less durable than new assets and adopt less durable, low quality assets, that are otherwise dominated technologies. More durable assets are more likely to be rented given their larger financing need. Legal enforcement affects trade and technology adoption; weak legal enforcement economies are net importers of used assets and invest a larger fraction in less durable, low quality assets. There is a critical distinction between the pledgeability and durability of assets: pledgeability facilitates financing whereas the net effect of durability is to impede financing.

JEL-codes: D24 D91 D92 E22 G32 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-mac
Date: 2016-06
Note: CF DEV EFG LE PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Published as Adriano A. Rampini, 2019. "Financing Durable Assets," American Economic Review, vol 109(2), pages 664-701.

Downloads: (external link)
http://www.nber.org/papers/w22324.pdf (application/pdf)

Related works:
Working Paper: Financing Durable Assets (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:22324

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w22324

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-04-15
Handle: RePEc:nbr:nberwo:22324