Efficient Sorting in a Dynamic Adverse Selection Model: The Hot Potato
AbstractWe study the possibility of achieving efficiency in a dynamic adverse selection market for durable goods. The idea is to use the number of times a car has been traded (``vintage'') as a signal of its quality. Higher-valuation consumers experiment with younger vintages. We first exhibit an impossibility result: no choice of (re)sale prices can induce consumers to follow this experimentation policy. We then show that modified leasing contracts can be constructed so as to achieve efficiency if consumers are patient.
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1209.
Date of creation: 01 Aug 2000
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"The Role of Leasing under Adverse Selection,"
Princeton Economic Theory Papers, Economics Department, Princeton University
99f7, Economics Department, Princeton University.
- Igal Hendel & Alessandro Lizzeri, 2002. "The Role of Leasing under Adverse Selection," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(1), pages 113-143, February.
- Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
- Igal Hendel & Alessandro Lizzeri, 1997.
"Adverse Selection in Durable Goods Markets,"
NBER Working Papers
6194, National Bureau of Economic Research, Inc.
- Alessandro Lizzeri & Igal Hendel, 1999. "Adverse Selection in Durable Goods Markets," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1097-1115, December.
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