User Specialization and Asset Financing

This paper provides a common explanation for a variety of asset financing arrangements that are observed in practice, specifically leasing, secured debt, project finance without recourse, and vendor financing. Such arrangements are viewed as serving to allocate ownership of one or many assets to those users best able to make use of these assets, in a manner that precludes ex-post bargaining and therefore avoids the distortion of ex-ante investment. The paper also provides a partial explanation for the various levels of seniority of debt