Title

Return, purchase, or skip? Outcome, duration, and consumer behavior in the rent-to-own market

Author Info

Michael H. Anderson, University of Massachusetts - Dartmouth
Sanjiv Jaggia, California Polytechnic State University - San Luis ObispoFollow

Recommended Citation

Postprint version. Published in Empirical Economics, Volume 43, Issue 1, August 1, 2012, pages 313-334.

The definitive version is available at https://doi.org/10.1007/s00181-011-0461-4.

Abstract

Rent-to-own (RTO) is attractive to financially distressed consumers. It allows immediate access to merchandise and an opportunity for eventually acquisition. Yet goods can be returned at any point without penalty or other adverse consequences. We use a competing risk methodology that accounts for unobserved consumer heterogeneity to study how contracts conclude, estimating the probabilities of exit— via return, purchase, or skip—and the associated durations. The estimated outcome probabilities highlight the use of the embedded return option by RTO consumers and the trade-offs and cross-subsidization implicit in the RTO contractual arrangement.We offer rational and behavioral explanations of consumer behavior in the RTO market, which we believe can be generalized to other consumer loan markets.

Disciplines

Economics

Copyright

2011 Springer.

Number of Pages

22