The Market for Used Cars: A New Test of the Lemons Model

35 Pages Posted: 11 Jun 2002

See all articles by Winand Emons

Winand Emons

University of Bern - Department of Economics; Centre for Economic Policy Research (CEPR)

George Sheldon

University of Basel - Department of Applied Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: May 2002

Abstract

The lemons model assumes that owners of used cars have an informational advantage over potential buyers with respect to the quality of their vehicles. Owners of bad cars will try to sell them to unsuspecting buyers while owners of good cars will hold on to theirs. Consequently, the quality of traded automobiles should be sub-average. In contrast to previous work, the following Paper tests both the assumption of informational asymmetry and the prediction of sub-average traded car quality using a sample consisting of all 1985 cars registered in the Swiss canton of Basle-City over the period 1985-91. Our data support both the assumption and the prediction of the lemons model. The lemons problem does not appear to be widespread, however.

Keywords: Adverse selection, used car market, duration models

JEL Classification: C41, D82, L15, L62

Suggested Citation

Emons, Winand and Sheldon, George, The Market for Used Cars: A New Test of the Lemons Model (May 2002). Available at SSRN: https://ssrn.com/abstract=315684

Winand Emons (Contact Author)

University of Bern - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

George Sheldon

University of Basel - Department of Applied Economic Research ( email )

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Basel, CH-4003
Switzerland
+41 61 267 33 76 (Phone)
+41 61 267 12 36 (Fax)

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