Is Leasing Greener Than Selling?

TLDR

Leasing is promoted as greener because firms retain ownership and can remarket or design durable products, reducing new production, yet critics argue that firms may remove off‑lease units to protect new sales, potentially worsening environmental outcomes. The study investigates whether leasing can simultaneously be more profitable and have a lower total environmental impact compared to selling. An analytical life‑cycle environmental impact model is employed to assess leasing versus selling. The analysis shows leasing can be environmentally worse even with full remarketing, but can be greener than selling when mid‑life removal occurs; disposal fees or remanufacturing may increase impact, while consumer education can improve leasing’s relative performance. The paper was accepted by J.

Abstract

Based on the proposition that leasing is environmentally superior to selling, some firms have adopted a leasing strategy and others promote their existing leasing programs as environmentally superior to “green” their image. The argument is that because a leasing firm retains ownership of the off-lease units, it has an incentive to remarket them or invest in designing a more durable product, resulting in a lower volume of new production and disposal. However, leasing might be environmentally inferior because of the direct control the firm has over the off-lease products, which may prompt the firm to remove them from the market to avoid cannibalizing the demand for new products. Motivated by these issues, we adopt a life-cycle environmental impact perspective and analytically investigate if leasing can be both more profitable and have a lower total environmental impact. We find that leasing can be environmentally worse despite remarketing all off-lease products and greener than selling despite the mid-life removal of off-lease products. Our analysis also provides insights for environmental groups and entities that use different approaches to improve the environmental performance of business practices. We show that imposing disposal fees or encouraging remanufacturing, under some conditions, can actually lead to higher environmental impact. We also identify when educating consumers to be more environmentally conscious can improve the relative environmental performance of leasing. This paper was accepted by J. Miguel Villas-Boas, marketing.