American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Financing Durable Assets
American Economic Review
(pp. 664–701)
Abstract
This paper studies how the durability of assets affects financing. We show that more durable assets require larger down payments making them harder to finance, because durability affects the price of assets and hence the overall financing need more than their collateral value. Durability affects technology adoption, the choice between new and used capital, and the rent versus buy decision. Constrained firms invest in less durable assets and buy used assets. More durable assets are more likely to be rented. Economies with weak legal enforcement invest more in less durable, otherwise dominated assets and are net importers of used assets.Citation
Rampini, Adriano A. 2019. "Financing Durable Assets." American Economic Review 109 (2): 664–701. DOI: 10.1257/aer.20170995Additional Materials
JEL Classification
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O31 Innovation and Invention: Processes and Incentives