Beautiful Lemons: Adverse Selection in Durable-Goods Markets with Sorting

The early 1970s witnessed three major advances in durable-goods theory — Swan, Peter. 1970. “Durability of Consumption Goods.” American Economic Review. December, 60:5, pp. 884–94. Swan, Peter. 1971. “The Durability of Goods and Regulation of Monopoly.” Bell Journal of Economics. Spring, 2:1, pp. 347–57. and Sieper, E. and Peter Swan. 1973. “Monopoly and Competition in the Market for Durable Goods.” Review of Economic Studies. July, 40:3, pp. 333–51. on optimal durability, Coase, Ronald. 1972. “Durability and Monopoly.” Journal of Law and Economics. April, 15:1, pp. 143–49. on time inconsistency, and Akerlof, George. 1970. “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics. August, 84:3, pp. 488–500. on adverse selection. This paper surveys durable goods theory starting with these three contributions, where much of the focus is on recent literature and on models that explain real-world phenomena. In addition to the ideas found in the contributions of Swan, Coase, and Akerlof, topics covered include why producers sometimes practice “planned obsolescence,” the role of adverse selection in new-car leasing, and reasons for aftermarket monopolization.

Download Full-text

Adverse Selection in Durable Goods Markets

The American Economic Review ◽

10.1257/aer.89.5.1097 ◽

1999 ◽

Vol 89 (5) ◽

pp. 1097-1115 ◽

Cited By ~ 130

Author(s):

Igal Hendel ◽

Alessandro Lizzeri

Keyword(s):

Dynamic Model ◽

Adverse Selection ◽

Durable Goods ◽

Used Goods Markets ◽

Used Goods ◽

Volume Of Trade

We present a dynamic model of adverse selection to examine the interactions between new and used goods markets. We find that the used market never shuts down, the volume of trade can be large, and distortions are lower than previously thought. New cars prices can be higher under adverse selection than in its absence. An extension to several brands that differ in reliability leads to testable predictions of the effects of adverse selection. Unreliable brands have steeper price declines and lower volumes of trade. We contrast these predictions with those of a model where brands physically depreciate at different rates. (JEL D82, L15)

Download Full-text

Conference attendees examine employers' use of risk adjustment to contend with adverse selection from health plans

PsycEXTRA Dataset ◽

10.1037/e556622006-025 ◽

2002 ◽

Keyword(s):

Adverse Selection ◽

Risk Adjustment ◽

Health Plans

Download Full-text

AGENCY PROBLEM DALAM PENERAPAN PEMBIAYAAN AKAD MUDHARABAH PADA PERBANKAN SYARIAH

ALQALAM ◽

10.32678/alqalam.v33i1.384 ◽

2016 ◽

Vol 33 (1) ◽

pp. 46

Author(s):

Aswadi Lubis

Keyword(s):

High Risk ◽

Asymmetric Information ◽

Human Resources ◽

Moral Hazard ◽

Adverse Selection ◽

Agency Problem ◽

Agency Problems ◽

Islamic Banking ◽

The Public

The purpose of writing this article is to describe the agency problems that arise in the application of the financing with mudharabah on Islamic banking. In this article the author describes the use of the theory of financing, asymetri information, agency problems inside of financing. The conclusion of this article is that the financing is asymmetric information problems will arise, both adverse selection and moral hazard. The high risk of prospective managers (mudharib) for their moral hazard and lack of readiness of human resources in Islamic banking is among the factors that make the composition of the distribution of funds to the public more in the form of financing. The limitations that can be done to optimize this financing is among other things; owners of capital supervision (monitoring) and the customers themselves place restrictions on its actions (bonding).

Download Full-text