Title

Are Lemons Really Hot Potatoes

Department/School

Economics

Date

2009

Document Type

Article

Keywords

adverse selection, hazard rates, automobiles

DOI

https://doi.org/10.1016/j.ijindorg.2008.08.004

Abstract

We model the hazard rate for car ownership spells. Our model allows us to distinguish among different types of adverse selection effects by observing the type of unobserved heterogeneity across owners of the same car. Our empirical results strongly suggest that there is a lemons effect because there is significant unobserved heterogeneity. However, they also suggest that the lemons effect is caused by the first owner rather than the manufacturer. Had the manufacturer created the lemon, the unobserved heterogeneity would be positively correlated over all owners of a given car. Instead we observe a negative correlation between the unobserved heterogeneity term for the first owner and the unobserved heterogeneity term for subsequent owners.

Volume

27

Issue

2

Published in

International Journal of Industrial Organization

Citation/Other Information

Engers, M., Hartmann, M., & Stern, S. (2009). Are Lemons Really Hot Potatoes? International Journal of Industrial Organization, 27(2), 250-263. https://doi.org/10.1016/j.ijindorg.2008.08.004

This document is currently not available here.

Share

COinS