Are lemons really hot potatoes?

Engers, Maxim, Hartmann, Monica, & Stern, Steven (2009) Are lemons really hot potatoes? International Journal of Industrial Organization, 27(2), pp. 250-263.

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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. © 2008 Elsevier B.V. All rights reserved.

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6 citations in Web of Science®

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ID Code: 73227
Item Type: Journal Article
Refereed: Yes
Additional URLs:
Keywords: Adverse selection, Automobiles, Hazard rates
DOI: 10.1016/j.ijindorg.2008.08.004
ISSN: 0167-7187
Divisions: Current > Schools > School of Mathematical Sciences
Current > QUT Faculties and Divisions > Science & Engineering Faculty
Copyright Owner: Copyright 2009 Elsevier BV * North-Holland
Deposited On: 02 Jul 2014 02:08
Last Modified: 02 Jul 2014 23:54

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