Inferring the Economic Preference of a Rental Vehicle Company by Modeling Its De-fleeting Process

When a vehicle manufacturer designs a contract with a rental vehicle company it is important for the OEM to properly understand the rental company’s economic preference. While it is usually not directly observable, the economic preference of the counter party can often be revealed indirectly through some observable market behavior. In such cases, econometric inference needs to be used. In this paper, we use the de-fleeting process of the rental vehicle company as the inferential apparatus. To this end, we first develop a model to describe the decision-making in the de-fleeting process for the rental vehicle company, based on the optimal stopping theory. We then outline an econometric procedure to estimate the model parameters. Finally, we use simulated data to illustrate how to deal with some of the technical issues that one might encounter when the procedure is applied to real data. ∗Opinions expressed herein are entirely those of the authors, rather than those of Ford Motor Company. †Department of Quantitative Finance, National Tsing Hua University, Hsinchu, Taiwan, 30013, ROC, [email protected]. ‡Research and Advanced Engineering, Ford Motor Company, Dearborn, MI 48121-2053, USA §Research and Advanced Engineering, Ford Motor Company, Dearborn, MI 48121-2053, USA