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The Effect of Information on Market Activity: Evidence from Vehicle Recalls

Author

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  • Inge van den Bijgaart

    (Utrecht University and University of Gothenburg)

  • Davide Cerruti

    (ETH Zürich)

Abstract

We evaluate the effect of vehicle recalls on vehicle transactions in the second-hand market. Using a rich data set of Dutch vehicle registrations, we exploit the quasiexperimental variation in recalls across nearly identical cars. We find strong heterogeneities across market segments: transactions increased for cars with lower listed price or with defects, and decreased for those with higher price or no defects. Based on our theoretical model, this suggests that recalls increase sorting in low-end markets, yet exacerbate adverse selection in high-end markets. Our results shed light on the effect of information arrival in markets subject to uncertainty and information asymmetries.

Suggested Citation

  • Inge van den Bijgaart & Davide Cerruti, 2024. "The Effect of Information on Market Activity: Evidence from Vehicle Recalls," The Review of Economics and Statistics, MIT Press, vol. 106(1), pages 230-245, January.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:1:p:230-245
    DOI: 10.1162/rest_a_01164
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