An sS Model with Adverse Selection / Christopher L. House, John V. Leahy.

Format:

Book

Author/Creator:

House, Christopher L.

Contributor:

National Bureau of Economic Research.

Leahy, John V.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8030.

NBER working paper series no. w8030

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

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.

Notes:

Print version record

December 2000.