Adverse Selection in Durable Goods Markets

Alessandro Lizzeri and Igal Hendel

American Economic Review, 1999, vol. 89, issue 5, 1097-1115

Abstract: We present a dynamic model of adverse selection to examine the interactions between new and used goods markets. We find that the used market never shuts down, the volume of trade can be large, and distortions are lower than previously thought. New cars prices can be higher under adverse selection than in its absence. An extension to several brands that differ in reliability leads to testable predictions of the effects of adverse selection. Unreliable brands have steeper price declines and lower volumes of trade. We contrast these predictions with those of a model where brands physically depreciate at different rates.

JEL-codes: D82 L15 (search for similar items in EconPapers)
Date: 1999
Note: DOI: 10.1257/aer.89.5.1097
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (114)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.89.5.1097 (application/pdf)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Adverse Selection in Durable Goods Markets (1997)
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:aea:aecrev:v:89:y:1999:i:5:p:1097-1115

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().