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