Template-type: ReDIF-Paper 1.0
Author-Name: Richard Blundell
Author-Workplace-Name: University College London and Institute for Fiscal Studies
Author-Email: r.blundell@ucl.ac.uk
Author-Name: Ran Gu
Author-Workplace-Name: University of Essex and Institute for Fiscal Studies
Author-Email:  ran.gu@essex.ac.uk
Author-Name: Soren Leth-Petersen
Author-Workplace-Name: University of Copenhagen, CEBI and CEPR
Author-Email:  	Soren.Leth-Petersen@econ.ku.dk
Author-Name: Hamish Low
Author-Workplace-Name: University of Oxford and Institute for Fiscal Studies
Author-Email: hamish.low@economics.ox.ac.uk
Author-Name: Costas Meghir
Author-Workplace-Name: Yale University, NBER, IZA, CEPR and the Institute for Fiscal Studies
Author-Email:c.meghir@yale.edu
Title: Durables and Lemons: Private Information and the Market for Cars
Abstract: 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.
Classification-JEL:  D15, D82, E21
Keywords: Lemons penalty, car market, estimated life-cycle equilibrium model
Length: 37 pages
Creation-Date: 2019-12-06
Number: 2019-W10
File-URL: https://www.nuffield.ox.ac.uk/economics/Papers/2019/2019W10_Lemons%20Ox_WP.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:1910