The Market for Used Cars: A New Test of the Lemons Model
AbstractThe lemons model assumes that owners of used cars have an informational advantage over potential buyers with respect to the quality of their vehicles. Owners of bad cars will try to sell them to unsuspecting buyers while owners of good cars will hold on to theirs. Consequently, the quality of traded automobiles should be sub-average. In contrast to previous work, the following Paper tests both the assumption of informational asymmetry and the prediction of sub-average traded car quality using a sample consisting of all 1985 cars registered in the Swiss canton of Basle-City over the period 1985-91. Our data support both the assumption and the prediction of the lemons model. The lemons problem does not appear to be widespread, however.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3360.
Date of creation: May 2002
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Other versions of this item:
- Emons, Winand & Sheldon, George, 2002. "The market for used cars : a new test of the lemons model," HWWA Discussion Papers 187, Hamburg Institute of International Economics (HWWA).
- Winand Emons & George Sheldon, 2002. "The Market for Used Cars: A New Test of the Lemons Model," Diskussionsschriften dp0202, Universitaet Bern, Departement Volkswirtschaft.
- C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
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- Sylvain Prado, 2010. "A Family Hitch : Econometrics of the New and the Used Car Markets," EconomiX Working Papers 2010-4, University of Paris West - Nanterre la Défense, EconomiX.
- Christopher Adams & Laura Hosken & Peter Newberry, 2011. "Vettes and lemons on eBay," Quantitative Marketing and Economics, Springer, vol. 9(2), pages 109-127, June.
- Peter Kooreman & Marco Haan, 2006.
"Price Anomalies in the Used Car Market,"
Springer, vol. 154(1), pages 41-62, 03.
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