Information Reliability and Market Outcomes

Chihoon Cho (), Richard Frankel () and Xiumin Martin ()
Additional contact information
Chihoon Cho: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130
Richard Frankel: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130
Xiumin Martin: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130

Management Science, 2024, vol. 70, issue 9, 6255-6279

Abstract: We study the used car market to understand how public enforcement that intends to increase information reliability affects disclosure, pricing, and liquidity. In 1986, federal rules mandated the creation of odometer records, and states enforced the law in a staggered fashion. We find that used car asking-price sensitivity to mileage increases by 32.6%, and mileage disclosure in classified ads increases by 23.4%. The findings suggest that strengthened law enforcement increases odometer credibility and enhances market participants’ use of that information. We also show significant improvement in market outcomes: a 9.7% increase in asking price and a 13.4% increase in transaction speed, as reflected in the reduction in repeated ads. The price effect arises irrespective of whether ads contain mileage disclosure, whereas the liquidity effect arises mainly through disclosure. Our study shows public enforcement can benefit the market by improving information credibility. Supplemental Material: The data and online appendix are available at https://doi.org/10.1287/mnsc.2021.03758

Keywords: information asymmetry; adverse selection; reliability; disclosure; public enforcement; liquidity; lemons penalty; law (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2021.03758 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:9:p:6255-6279

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().