TY  - JOUR
AU  - House,Christopher L.
AU  - Leahy,John V.
TI  - An sS Model with Adverse Selection
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8030
PY  - 2000
Y2  - December 2000
UR  - http://www.nber.org/papers/w8030
L1  - http://www.nber.org/papers/w8030.pdf
N1  - Author contact info:
Christopher House
University of Michigan
Department of Economics
238 Lorch Hall
Ann Arbor, MI  48109-1220
Tel: 734/764-2364
Fax: 734/764-2769
E-Mail: chouse@umich.edu

John V. Leahy
Department of Economics
New York University
19 W. 4th Street, 6th Floor
New York, NY  10012
Tel: 212/992-9770
E-Mail: john.leahy@nyu.edu
AB  - We present a model of the market for used cars in which agents face a fixed cost of adjustment, the magnitude of which depend on the degree of adverse selection in the secondary market.  We find that, unlike typical models, the sS bands in our model contract as the variance of the shock process increases.  We also analyze a dynamic version of the model in which agents are allowed to make decisions that are conditional of the age of a used car.  We find that, as a car ages, the lemons problem tends to decline in importance, and the sS bands contract.
ER  -