Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 792: The effect of information on market activity; evidence from vehicle recalls
Inge van den Bijgaart () and Davide Cerruti
Additional contact information
Inge van den Bijgaart: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden
Davide Cerruti: Centre for Energy Policy and Economics, ETH Zürich
Abstract: We evaluate the effect of vehicle recalls on vehicle transactions in the second-hand market. Using a rich dataset of Dutch vehicle registrations, we exploit the quasi-experimental variation in recalls across nearly-identical cars. We find strong heterogeneities across market segment:vehicles with a lower (higher) list price or some (zero) defects experience an increase (decrease) in transactions after a recall. Based on our theoretical model, this suggests that recalls increase sorting in low-end markets, yet exacerbate adverse selection in high-end markets. Our results shed light on the effect of information arrival in markets subject to uncertainty and information asymmetries.
Keywords: Vehicles; recalls; adverse selection; sorting: information
51 pages, October 2020
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