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 1985-1991. 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 Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0202.
Date of creation: Apr 2002
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adverse selection; used car market; duration models;
Other versions of this item:
- Emons, Winand & Sheldon, George, 2002. "The Market for Used Cars: A New Test of the Lemons Model," CEPR Discussion Papers 3360, C.E.P.R. Discussion Papers.
- 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).
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-06-13 (All new papers)
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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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