NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Ran Gu

Department of Economics
University of Essex
Wivenhoe Park
Colchester
CO4 3SQ
United Kingdom
Tel: +447445586700

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: University of Essex

NBER Working Papers and Publications

September 2019Durables and Lemons: Private Information and the Market for Cars
with Richard Blundell, Søren Leth-Petersen, Hamish Low, Costas Meghir: w26281
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.
 
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