TY - UNPB

T1 - Durables and Lemons

T2 - Private Information and the Market for Cars

AU - Blundell, Richard

AU - Gu, Ran

AU - Leth-Petersen, Søren

AU - Low, Hamish

AU - Meghir, Costas

PY - 2019/9

Y1 - 2019/9

N2 - We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. Private information induces a transaction cost and distorts the market reducing the value of a car as a savings instrument. We estimate the model using data on car ownership in Denmark, linked to register data. The lemons penalty is estimated to be 18% of the price in the first year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in the probability of downgrading at job loss.

AB - We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. Private information induces a transaction cost and distorts the market reducing the value of a car as a savings instrument. We estimate the model using data on car ownership in Denmark, linked to register data. The lemons penalty is estimated to be 18% of the price in the first year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in the probability of downgrading at job loss.

U2 - 10.3386/w26281

DO - 10.3386/w26281

M3 - Working paper

VL - 26281

T3 - NBER Working Paper Series - National Bureau of Economic Research

BT - Durables and Lemons

ER -