# relationship between renting a van and buying a van

I can buy a van and use it to deliver goods. The price of the van is X. Alternatively, I can hire the van, with a monthly price of Y. What does the economics theory tell about the relationship between X and Y? Obviously, X > Y. But how much more? I get the intuition that the relationship it is related to interest rates on loans for vans. But these interest rates depend on the person/company. Also, for some uses the van can produce a lot of money. For others, none.

What determines the relationship between Y and X?

Thank you people!

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BobbyT is a new contributor to this site. Take care in asking for clarification, commenting, and answering. Check out our Code of Conduct.

Equation 7 here: https://www.ucl.ac.uk/~uctp39a/Qpaper_joe1992.pdf

Price of capital is equal to the present value (discounted by interest rate) of the value of marginal product of capital (adjusted by depreciation).

Price of rental is equal to the value of marginal product of capital (adjusted by depreciation). Buying is equivalent to discounted owning.

Things are more complex if there are costs of adjusting capital (G in the paper).

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QBlundell is a new contributor to this site. Take care in asking for clarification, commenting, and answering. Check out our Code of Conduct.

It's not about how people make use of it at what cost. Think through the dealer's point of view. Obviously the cost of buying a van depends on the manufacturer, not the dealer. Once the dealer owns the van, it needs to come up with a monthly leasing fee to put the van into the lease market. The van depreciates, there should be a depreciation model (assuming its not simply linear). Then, the dealer has some risks which adds to the monthly fee. Then, the dealer has to be compensated for providing the market with the option that a van can be leased for whatever months. This is how $$Y$$ is calculated. $$X$$ depends on the manufacturer or dealers if 2nd hand.

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Mark to Market is a new contributor to this site. Take care in asking for clarification, commenting, and answering. Check out our Code of Conduct.