Durables and Lemons: Private Information and the Market for Cars

Richard Blundell (), Ran Gu (), Søren Leth-Petersen, Hamish Low and Costas Meghir ()
Additional contact information
Costas Meghir: Cowles Foundation, Yale University, NBER, IZA, CEPR, and Institute for Fiscal Studies, https://economics.yale.edu/people/faculty/costas-meghir

No 2197, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. Private information induces a transaction cost and distorts the market reducing the value of a car as a savings instrument. We estimate the model using data on car ownership in Denmark, linked to register data. The lemons penalty is estimated to be 18% of the price in the first year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in the probability of downgrading at job loss.

Keywords: Lemons penalty; Car market; Estimated life-cycle equilibrium model (search for similar items in EconPapers)
JEL-codes: D15 D82 E2 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2019-09
New Economics Papers: this item is included in nep-com, nep-dge, nep-ind, nep-mac and nep-tre
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Durables and Lemons: Private Information and the Market for Cars (2019)
Working Paper: Durables and Lemons: Private Information and the Market for Cars (2019)
Working Paper: Durables and Lemons: Private Information and the Market for Cars (2019)
Working Paper: Durables and Lemons: Private Information and the Market for Cars (2019)
Working Paper: Durables and Lemons: Private Information and the Market for Cars (2019)
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