Working Paper: CEPR ID: DP12997
Authors: Adriano A Rampini
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.
Keywords: durability; financial constraints; collateral; vintage capital; technology adoption; leasing
JEL Codes: D21; E22; G32; O16; G31; D86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Asset Durability (G32) | Larger Down Payments (G51) |
| Larger Down Payments (G51) | Financing Constraints (G32) |
| Asset Durability (G32) | Financing Constraints (G32) |
| Durable Assets (L68) | Higher Prices (D49) |
| Higher Prices (D49) | Financing Need (G32) |
| Financing Need (G32) | Financing Constraints (G32) |
| Constrained Firms (D22) | Invest in Less Durable Assets (G31) |