Efficient Sorting in a Dynamic Adverse Selection Model: The Hot Potato
نویسندگان
چکیده
We study the possibility of achieving efficiency in a dynamic adverse selection market for durable goods. The idea is to use the number of times a car has been traded (“vintage”) as a signal of its quality. Higher-valuation consumers experiment with younger vintages. We first exhibit an impossibility result: no choice of (re)sale prices can induce consumers to follow this experimentation policy. We then show that modified leasing contracts can be constructed so as to achieve efficiency if consumers are patient.
منابع مشابه
Efficient Sorting in a Dynamic Adverse-Selection Model
We discuss a class of markets for durable goods where efficiency (or approximate efficiency) is obtained despite the presence of information asymmetries. In the model, the number of times a good has changed hands (the vintage of the good) is an accurate signal of its quality, each consumer self-selects into obtaining the vintage that the social planner would have assigned to her, and consumers’...
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