Moral Hazard and the Market for Used Automobiles

Abstract

I examine a moral hazard problem faced by the owners offleet automobiles. Because fleet vehicles are generally notdriven by their owners, the drivers of these vehicles do not bearall of the costs of either neglecting or abusing the vehicle, causingthese vehicles to depreciate faster than owner-operated vehicles. Empirical estimates show that, after controlling for mileage, fleetvehicles depreciate approximately ten to thirteen percent fasterper-year than owner-driven vehicles. I argue that at least partof this increased depreciation is attributable to moral hazard.