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

33 Pages Posted: 13 Jun 2017

See all articles by Anthony Strittmatter

Anthony Strittmatter

University of St. Gallen - Swiss Institute for Empirical Economic Research (SEW)

Michael Lechner

University of St. Gallen - Swiss Institute for Empirical Economic Research

Date Written: May 23, 2017

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

JEL Classification: D820, L150, L620

Suggested Citation

Strittmatter, Anthony and Lechner, Michael, Sorting on the Used-Car Market after the Volkswagen Emission Scandal (May 23, 2017). CESifo Working Paper Series No. 6480, Available at SSRN: https://ssrn.com/abstract=2985342

Anthony Strittmatter (Contact Author)

University of St. Gallen - Swiss Institute for Empirical Economic Research (SEW) ( email )

Varnbuelstrasse 14
St. Gallen, 9000
Switzerland

Michael Lechner

University of St. Gallen - Swiss Institute for Empirical Economic Research ( email )

Varnbuelstrasse 14
St. Gallen, 9000
Switzerland
+41 71 224 2320 (Phone)

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