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Sorting on the Used-Car Market After the Volkswagen Emission Scandal

Anthony Strittmatter () and Michael Lechner

No 6480, CESifo Working Paper Series from CESifo Group Munich

Abstract: The disclosure of the VW emission manipulation scandal caused a quasi-experimental market shock in the observable quality of VW diesel vehicles. We consider a classical model for adverse selection and sorting to derive an empirically testable hypothesis about the impact of observable quality on the supply of used cars. We test the hypothesis with data collected from an online car selling platform which reflects about 50% of the German used-car market. The empirical approach is based on a conditional difference-in-differences method. We find that the supply of used VW diesel vehicles increases after the VW emission scandal. This finding is consistent with the predictions of the theoretical model. Furthermore, we find the positive supply effects increase with the probability of manipulation.

Keywords: supply of used cars; quality of durable goods; sorting; difference-in-differences; management fraud (search for similar items in EconPapers)
JEL-codes: D82 L15 L62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ene and nep-tre
Date: 2017
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