The Impact of Environmental Fraud on the Used Car Market: Evidence from Dieselgate

Abstract

This study explores how exposure of fraud committed by a durable-goods manufacturer affects secondary markets for that manufacturer’s products. Specifically, we examine the effect of Volkswagen’s 2015 emissions scandal (“Dieselgate”) on the used car market in Israel. Using a difference-in–differences research design and administrative and proprietary data, we find that, after Dieselgate, the number of transactions involving VW-mishandled cars fell by 18\%, and the resale price of these cars fell by 6\%. The drop in the number of transactions was concentrated among private sellers. We discuss alternative explanations and suggest that reputational concerns and adverse selection following Dieselgate could explain our findings.

Keywords: secondary markets, durable goods, vehicles, reputation, fraud, product recall

JEL Classification: L14, L62, Q51