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- Title
Test of the Lemons Model: Comment.
- Authors
Pratt, Michael D.; Hoffer, George E.
- Abstract
In a recent article in "The American Economic Review," Eric Bond (1982) provided an empirical test of the "lemons" model. Bond determined that there was not a significant difference between the maintenance records of pickup trucks which were purchased new and those purchased as used vehicles, using the 1977 Truck Inventory and Use (TIU) Survey. Several explanations for his findings were suggested. These include the counteracting institutions discussed by George Akerlof (1970), as well as the ability of consumers to obtain enough information to eliminate the buyer-seller informational asymmetry. While Bond's conclusions are interesting, the authors propose to provide a finer test of the lemons model in order to determine whether these conclusions accurately reflect conditions in the market for used pickup trucks. Their model introduces two refinements to Bond's analysis. Bond was unable to verify the lemons model because of the lack of expenditure data in the TIU Survey. As he notes, the quality of a used vehicle depends not only on the probability of maintenance but on the costliness of repairs. However, the relative cost of repairs cannot be captured to any significant degree in the maintenance categories of the TIU Survey.
- Subjects
ECONOMICS; MAINTENANCE; PICKUP trucks; MOTOR vehicles; MATHEMATICAL models; AKERLOF, George A., 1940-; AUTOMOTIVE transportation; TRUCK maintenance &; repair
- Publication
American Economic Review, 1984, Vol 74, Issue 4, p798
- ISSN
0002-8282
- Publication type
Article