interfering with secondary markets we present a model to address in a unified manner four ways in which a monopolist can interfere with secondary markets in the model consumers have heterogeneous valuations for quality so that used good markets play an allocative role our results are the following 1 in contrast to swan s famous independence result a monopolist does not provide socially optimal durability 2 allowing the monopolist to rent does not restore socially optimal durability and increases the monopolist s market power in the used market however forcing the monopolist to sell the goods may be a bad policy because it would lead to either lower output or lower durability 3 the manufacturer benefits from a well functioning used good market despite the fact that used goods provide competition for new goods 4 the monopolist prefers to restrict consumers abilities to maintain the good

adverse selection in asset markets theory and evidence from the indian market for cows dairy cows cycle through periods where their quality is more observable the milking phase and where their quality is less observable the dry phase this variation in quality observability creates the potential for an adverse selection problem i develop a theoretical model of trade in dry and milking cows and find empirical evidence consistent with the adverse selection theory in particular dry animal prices fall less in response to negative shocks relative to milking animal prices which is consistent with the model s prediction that negative shocks actually help the dry animal market by pushing more high quality owners to sell

decentralized trade mitigates the lemons problem in markets with adverse selection only low quality units trade in the competitive equilibrium when the average quality of the good held by sellers is low we show that under decentralized trade however both high and low quality units trade although with delay moreover when frictions are small the surplus realized is greater than the static competitive surplus thus decentralized trade mitigates the lemons problem remarkably payoffs are competitive as frictions vanish even though both high and low quality units continue to trade and there is trade at several prices markets differ in the degree to which trade is centralized call markets used to set opening prices on the nyse are highly centralized and all trade takes place at a single price the market clearing price in contrast in housing labor or used car markets trade is highly decentralized and prices are determined by bilateral bargaining between buyers and sellers and may differ between trades the competitive model abstracts away from these institutional aspects thus providing a model suitable in principle for the study of both centralized and decentralized markets our results suggest that decentralized markets with adverse selection may perform better than anticipated by the static competitive model and therefore that these institutional features cannot be ignored it is known that in markets for homogenous goods decentralized trade tends to yield competitive outcomes when trading frictions are small because competitive equilibrium is efficient in these markets this implies that decentralized trade generates nearly efficient outcomes in markets with adverse selection however competitive equilibria ce need not be efficient which raises the possibility that alternative market structures perform better in this article we study a version of akerlof s 1970 market for lemons in which trade is decentralized each period an equal measure of buyers and sellers enters the market every seller is endowed with a unit of either high or low quality at each period every agent in the market has a positive probability of meeting an agent of the opposite type once matched a buyer without observing the quality of the seller s unit makes a take it or leave it price offer if the seller accepts then they trade at the offered price and both agents exit the market if the seller rejects the offer then both agents remain in the market at the next period discounting of future gains and the possible delay in matching with a trading partner constitute trading frictions when the average quality of the good held by entering sellers is low the market has a unique competitive equilibrium ce in which the price equals the buyers value of a low quality unit

does ambiguity aversion survive in experimental asset markets although a number of theoretical studies explain empirical puzzles in finance with ambiguity aversion it is not a given that individual ambiguity attitudes survive in markets in fact despite ample evidence of ambiguity aversion in individual decision making most studies find no or only limited ambiguity aversion in experimental financial markets even when they exclude arbitrage we argue that ambiguity effects in markets depend on market feedback and on a sufficiently strong bias toward ambiguity among the participants accordingly we find significant ambiguity effects in low feedback call markets for assets that provoke high ambiguity aversion but no ambiguity effects in high feedback double auctions

ambiguity aversion and the preference for established brands we propose that ambiguity aversion as introduced in the literature on decision making under uncertainty drives a preference for established brands in multiattribute choices among branded alternatives established brands are those for which belief in quality is held with greater confidence even if specific attributes might be inferior to those of competing less established brands in five experiments we examine the role of ambiguity aversion in the preference for dominated established brands we first show a correlation between ambiguity aversion revealed through choices among monetary lotteries and the preference for established brands we then show that the preference for established brands is enhanced when ambiguity aversion is made more salient in unrelated preceding lottery choices thus ambiguity aversion carries across choices in addition ambiguity aversion and the preference for established brands are both enhanced when subjects anticipate that others will evaluate their lottery choices finally ambiguous information about brand attributes tends to increase the preference for established brands

the economics of smallholder organic contract farming in tropical africa summary the paper examines the revenue effects of certified organic contract farming for smallholders and of adoption of organic agricultural farming methods in a tropical african context the comparison in both cases is with farming systems that are organic by default survey data from a large organic coffee contract farming scheme in uganda are reported and analyzed using a standard ols regression and a full information maximum likelihood fiml estimate of the heckman selection model the analysis finds that controlling for a range of factors there are positive revenue effects both from participation in the scheme and more modestly from applying organic farming techniques

adverse selection commitment and renegotiation extension to and evidence from insurance markets with asymmetric information full commitment to long term contracts may permit markets to approach first best allocations however commitment can be undermined by opportunistic behavior notably renegotiation we reexamine commitment in insurance markets we present an alternative model which extends laffont and tirole s procurement model to address uncertainty and competition which involves semipooling in the first period followed by separation this and competing models e g single period models and no commitment models have different predictions concerning temporal patterns of insurer profitability a test using california data suggests that some automobile insurers use commitment to attract selective portfolios comprising disproportionate numbers of low risks

the role and growth of new car leasing theory and evidence abstractthere has been substantial growth in rates of new car leasing over the last few decades building on recent theoretical research we construct a model of the leasing decision in which leasing mitigates adverse selection and reduces transaction costs but moral hazard limits its use in our model the prevalence of leasing is related to new car reliability which suggests that the recent growth in leasing is at least partly due to improvements in new car reliability we use this model to derive testable implications and then conduct an empirical analysis to investigate whether the operation of the new and used car markets is consistent with the predictions of this theoretical approach our empirical results support the theoretical predictions of our model in particular we provide direct evidence that leasing mitigates adverse selection and that an important factor in the growth in new car leasing rates has indeed been the growth of new car reliability

durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 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

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

determinants of corporate leasing policy the existing finance literature assumes the real operating cash flows from leasing or owning are invariant to the ownership of the asset and focuses on tax related incentives for corporate leasing policy our analysis suggests that taxes are important in identifying potential lessees and lessors but are less important in identifying the specific assets leased we provide a unified analysis of the various incentives affecting the lease versuspurchase decision we then show how these incentives explain the use of contractual provisions such as maintenance clauses deposits options to purchase the asset and metering when a firm buys an asset it obtains both the right to the services of that asset over the period it is owned plus the right to sell the asset at any future date with a lease the firm acquires only the right to the asset s services for a period specified in the contract the existing finance literature analyzing corporate leasing policy concentrates on the tax related incentives to lease or buy e g see miller and upton 19 myers et al 21 lewellen et al 13 franks and hodges 11 and brealey and young 4 we believe that taxes play an important role in explaining certain dimensions of leasing policy for example the choice between manufacturer and third party leasing however taxes provide only a limited explanation of why specific assets are leased rather than owned and for the choice of provisions in lease contracts in this paper we want to accomplish two things 1 to provide a unified analysis of the various incentives affecting the lease versus buy decision and 2 to employ that analysis to explain observed variation in corporate leasing policy in deriving testable hypotheses about the characteristics of lessees lessors the assets leased and provisions in lease contracts we extend the standard leaseversus buy analysis found in corporate finance textbooks e g brealey and myers

efficiency and adverse selection abstract ex ante and interim constrained efficiency of market equilibria with adverse selection is studied with a continuum of qualities allocations which are attainable i e feasible incentive compatible and individually rational are convex combinations of one step allocations named for the fact that an agent s consumption is a single stepped function of quality this makes possible a simple geometric treatment of efficiency competitive equilibrium is efficient if the distribution of quality is not too convex wilson s bell j econ 11 1980 108 130 buyer s equilibrium is generically unique and efficient an efficient wilson s seller s equilibrium always exists

ambiguity aversion and comparative ignorance decisions under uncertainty depend not only on the degree of uncertainty but also on its source as illustrated by ellsberg s observation of ambiguity aversion in this article we propose the comparative ignorance hypothesis according to which ambiguity aversion is produced by a comparison with less ambiguous events or with more knowledgeable individuals this hypothesis is supported in a series of studies showing that ambiguity aversion present in a comparative context in which a person evaluates both clear and vague prospects seems to disappear in a noncomparative context in which a person evaluates only one of these prospects in isolation

the implicit price for fair trade coffee does social capital matter abstract this study aims to ascertain whether the implicit price paid for fair trade coffee in regular supermarkets is influenced by the stock of social capital in the territory where consumers live a hedonic regression set up is adopted based on italian scanner data taken at nuts3 level regressors include attributes described on the label which include separate certifications for fair trade and organic eco label status plus various indicators of social capital and their interactions with the fair trade and organic eco label attributes the implicit consumer price paid for the fair trade attribute is significantly and positively affected by a social capital proxy the ratio of co op members to total employment

bubble formation and in efficient markets in learning to forecast and optimise experiments this experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects 1 submit a price forecast only 2 choose quantity to buy sell and 3 perform both tasks we find deviation of the market price from the fundamental price in all treatments but to a larger degree in treatments 2 and 3 mispricing is therefore a robust finding in markets with positive expectation feedback some very large recurring bubbles arise where the price is three times larger than the fundamental value which were not seen in former experiments

leasing lemons and buybacks in his seminal article of 1970 akerlof argued that the used car market is not efficient because adverse selection causes too little trade we construct a competitive model of the new and used car markets and investigate the relationship between new car leasing and adverse selection our analysis yields a number of interesting results including that new car leasing reduces the adverse selection problem and that buybacks also increase efficiency in the secondhand market we also discuss alternative explanations for new car leasing and an explanation for the growth in new car leasing during the last fifteen years copyright 2003 by the rand corporation

dynamic adverse selection and the supply size in this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller s private information while the realized distribution of qualities is public information we obtain that full trade occurs in every dynamic competitive equilibrium moreover we show that if prices can be conditioned on the supply size then a dynamic competitive equilibrium always exists while it fails to exist if prices cannot be conditioned on the supply size and the frequency of exchanges is high enough we conclude that the possibility to condition prices on the supply size allows us to reach efficiency in the limit for exchanges becoming more and more frequent while otherwise the welfare loss due to delays of exchanges remains bounded away from zero

how hybrids manage growth and social business tensions in global supply chains the case of impact sourcing this study contributes to the growing interest in how hybrid organizations manage paradoxical social business tensions our empirical case is impact sourcing hybrids in global supply chains that hire staff from disadvantaged communities to provide services to business clients we identify two major growth orientations community focused and client focused growth their inherent tensions and ways that hybrids manage them the former favors slow growth and manages tensions through highly integrated client and community relations the latter promotes faster growth and manages client and community relations separately both growth orientations address social business tensions in particular ways but also create latent constraints that manifest when entrepreneurial aspirations conflict with the current growth path in presenting and discussing our findings we introduce preempting management practices of tensions and the importance of geographic embeddedness and distance to the paradox literature

sharing the shared value a transaction cost perspective on strategic csr policies in global value chains this paper explores the conditions favouring or inhibiting the implementation of strategic corporate social responsibility csr policies in the context of global value chains gvcs using transaction cost theory tct we specify the economic and behavioural issues raised by strategic csr policies we show that the existence of market rewards for such policies does not constitute a solution per se but tends to increase the difficulties that value chain members face bringing tct into the analysis of the diffusion of strategic csr policies in gvcs helps us to make different contributions we first theoretically identify some limiting conditions of strategic csr policies in gvcs we also contribute to developing a more robust theoretical perspective for csr in gvc research which remains underdeveloped and mostly driven by empirical case studies finally we shed light on new research questions and topics that could guide major theoretical and empirical investigations in the capacity of gvcs members to bypass the numerous difficulties involved in the implementation of strategic csr policies

price discrimination via second hand markets consumers have heterogeneous tastes for new and used goods and second hand markets involve transactions costs a monopoly seller may gain or lose from the existence of a second hand market locally it may prefer lower transactions costs but globally it may prefer high transactions costs so it can strangle the used market the monopolist uses the second hand market as an indirect device to achieve a form of second degree price discrimination if the monopolist can control the quality of its product when used it may wish to deteriorate this quality to worthless or else to have it as good as new

selection into auctions for risky and ambiguous prospects we study experimentally the selection into first price sealed bid auctions for a risky or an ambiguous prospect most subjects chose to submit a bid for the risky prospect leading to thinner markets for the ambiguous prospect transaction prices for both prospects were equal although subjects expected the ambiguous markets to be smaller evidence of a positive correlation between risk and ambiguity aversion suggests that the ambiguous markets were populated by relatively risk tolerant bidders a control experiment with selection in a simple choice task shows that subjects correctly anticipate the effects of selection on market size and risk attitudes jel c91 d44 d81

a direct test of the lemons model the market for used pickup trucks of the implications of models of markets with asymmetric information in the seminal paper on markets with asymmetric information george akerlof 1970 pointed out two possible outcomes that may occur where sellers have better information about the quality of products than do buyers one possibility is that bad products will drive out good products if buyers cannot distinguish quality until after the purchase has been made there will be no incentive for sellers to provide good quality products and the average quality in the market will decline in the case of cars an often cited example of this phenomenon owners who discover that they have a lemon will attempt to sell it in the used car market to an unsuspecting buyer the owner of a creampuff will not sell his car since it is indistinguishable from a lemon to buyers and must therefore sell for the price of a car of average quality the effect of quality uncertainty is to reduce the volume of transactions in the used car market below the socially optimal level a second possibility suggested by akerlof is that institutions may develop to counteract the effects of quality uncertainty warranties and brand names can be used to give the buyer some assurance of quality these institutions may prevent good products from being driven from the market but they will

disagreement and learning dynamic patterns of trade we study volume dynamics when there are disagreements among investors for that purpose we develop a dynamic model in which differences in the interpretation of public information lead to trade we obtain a simple linear equilibrium in closed form in which risk averse agents take into account future trading opportunities when solving for their optimal portfolio allocation using this framework we then study what restrictions on the disagreement process are needed to generate empirically observed patterns in volume and prices we show that having infrequent but major disagreements leads to autocorrelation in volume and correlation between volume and absolute price changes when agents disagree on past news but agree on the interpretation of current news there is learning and the convergence of agents opinions leads to trade

ambiguity aversion and incompleteness of financial markets it is widely thought that incomes risks can be shared by trading in financial assets but financial assets typically carry some risk idiosyncratic to them hence disposing incomes risk using financial assets will involve buying into the inherent idiosyncratic risk however standard theory argues that diversification would reduce the inconvenience of idiosyncratic risk to arbitrarily low levels this argument is less robust than what standard theory leads us to believe ambiguity aversion can exacerbate the tension between the two kinds of risks to the point that classes of agents may not want to trade some financial assets thus theoretically the effect of ambiguity aversion on financial markets is to make the risk sharing opportunities offered by financial markets less complete than it would be otherwise

durable good monopoly and best price provisions best price provisions guarantee buyers that the prices they pay are the lowest available if the seller subsequently cuts price then each previous buyer is entitled to a refund a durable good monopolist who offers certain forms of these provisions can construct a consistent plan yielding the same profits as rental agreements and contracts with explicit quantity commitments the provisions require special circumstances to be practical but they are simple and effective and appear in a variety of economic settings three applications are discussed international commodity agreements markets for electric turbogenerators and markets for financial claims copyright 1990 by american economic association

sorting in the used car market after the volkswagen emission scandal the disclosure of the vw emission manipulation scandal caused a quasi experimental market shock in the observable quality of vw diesel vehicles we consider a classical model for adverse selection and sorting to derive an empirically testable hypothesis about the impact of observable quality on the supply of used cars we test the hypothesis with data collected from an online car selling platform which reflects about 50 of the german used car market the empirical approach is based on a conditional difference in differences method we find that the supply of used vw diesel vehicles increases after the vw emission scandal this finding is consistent with the predictions of the theoretical model furthermore we find the positive supply effects increase with the probability of manipulation

are lemons really hot potatoes abstract we model the hazard rate for car ownership spells our model allows us to distinguish among different types of adverse selection effects by observing the type of unobserved heterogeneity across owners of the same car our empirical results strongly suggest that there is a lemons effect because there is significant unobserved heterogeneity however they also suggest that the lemons effect is caused by the first owner rather than the manufacturer had the manufacturer created the lemon the unobserved heterogeneity would be positively correlated over all owners of a given car instead we observe a negative correlation between the unobserved heterogeneity term for the first owner and the unobserved heterogeneity term for subsequent owners

constructing sustainable palm oil how actors define sustainability abstract biofuels as a renewable source of energy have gained considerable importance in recent years the use of biofuels is expected to rise since national governments of developed nations like the us and european countries see it as one of the ways to fulfill climate targets and increase the security in their energy supply production of biofuels is also expected to rise as developing nations see in biofuels the opportunity for connecting to international markets through supplying a new demand in the energy market several studies report on the environmental social and economic gains and detriments that can arise from increased biofuel production and consumption however research that provides insight into the way in which such issues are defined by actors within the product chain is scarce in this article we analyse how the strategies and value definitions of actors involved in the production and consumption of biofuels lead to specific definitions of sustainability the empirical material concerns the chain of palm oil production in colombia and electricity generation in the netherlands it is analysed using the method of action in context which allows us to uncover the level and source of diversity of sustainability definitions in the product chain while the current growth in production of palm oil is definitely buyer driven the analysis of various activities in the chain shows that several aspects of sustainability are defined in more complex actor fields throughout the product chain

an economic theory of planned obsolescence planned obsolescence is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases however rational customers will pay for only the present value of the future services of a product therefore profit maximization seemingly implies producing any given flow of services as cheaply as possible with production involving efficient useful lives this paper shows why this analysis is incomplete and therefore incorrect monopolists are shown to desire uneconomically short useful lives for their goods oligopolists have the monopolist s incentive for short lives as well as a second incentive that may either increase or decrease their chosen durability however oligopolists can generally gain by colluding to reduce durability and increase rentals relative to sales some evidence is presented that appears to be generally consistent with the predictions of the theory

gasoline prices and the used automobile market a rational expectations asset price approach this paper examines the impact of changes in gasoline price expectations on the market values of used automobiles an asset model of automobile valuation is used to relate year to year changes in market values to changes in the present discounted value of gasoline expenses econometric evidence from data covering the years 1972 through 1981 substantially confirms the hypothesis of the model that a gasoline price shock causes relative price changes across automobile types in proportion to the differences in their rates of fuel consumption

on booms that never bust ambiguity in experimental asset markets with bubbles we study the effect of ambiguity on the formation of bubbles and on the occurrence of crashes in experimental asset markets a la smith suchanek and williams 1988 we extend their framework to an environment where the fundamental value of the asset is ambiguous we show that when the fundamental value is ambiguous asset prices tend to be lower than when it is risky although bubbles form in both the ambiguous and the risky environments additionally bubbles do not crash in the ambiguous case whereas they do so in the risky one these findings regarding depressed prices and the absence of crashes in the presence of ambiguity are in line with recent theoretical work stressing the crucial role of ambiguity to account for surprisingly low equity prices high returns as well as herding in asset markets

learning from prices and the dispersion in beliefs i study whether investors use an asset s price to update their beliefs about its payos i show that in a dynamic economy the relationship between the dispersion in investor beliefs and returnvolume characteristics can be used to empirically answer this question when investors have rational expectations re and condition on the price i show that belief dispersion is positively related to expected returns return volatility and correlation between volume and absolute returns but negatively related to return autocorrelation when investors do not use the price as in a dierence of opinions do model these relationships are reversed i test these predictions using the crosssection of returns volume and analyst forecast dispersion over dierent horizons the results are consistent with the re model at quarterly and longer horizons but reject both models at the monthly horizon i show that a hybrid model with some do investors and some re investors can match the short horizon evidence the empirical results are consistent with the idea that while some investors do not use the price in the short run they increase their conditioning on the price over time

reputation in bargaining and durable goods monopoly this paper analyzes durable goods monopoly in an infinite horizon discrete time game we prove that as the time interval between successive offers approaches zero all seller payoffs between zero and static monopoly profits are supported by subgame perfect equilibria this reverses a well known conjecture of coase alternatively one can interpret the model as a sequential bargaining game with one sided incomplete information in which an uninformed seller makes all the offers our folk theorem for seller payoffs equally applies to the set of sequential equilibria of this bargaining game

model misspecification and underdiversification in this paper we study intertemporal portfolio choice when an investor accounts explicitly for model misspecification we develop a framework that allows for ambiguity about not just the joint distribution of returns for all stocks in the portfolio but also for different levels of ambiguity for the marginal distribution of returns for any subset of these stocks we find that when the overall ambiguity about the joint distribution of returns is high then small differences in ambiguity for the marginal return distribution will result in a portfolio that is significantly underdiversified relative to the standard mean variance portfolio

national contexts matter the co evolution of sustainability standards in global value chains in this paper we investigate the role of key industry and other stakeholders and their embeddedness in particular national contexts in driving the proliferation and co evolution of sustainability standards based on the case of the global coffee industry we find that institutional conditions and market opportunity structures in consuming countries have been important sources of standards variation for example in the cases of fairtrade utz certified and the common code for the coffee community 4c in turn supplier structures in producing countries as well as their linkages with traders and buyers targeting particular consuming countries have been key mechanisms of standards transmission and selection unlike prior research which has emphasized the role of global actors and structures in promoting and hindering sustainability initiatives we argue that national economic and institutional conditions in consuming and producing countries have not only served as important drivers of standards multiplicity and co evolution but also as catalysts for the entire global sustainability movement

the demand for cars and the price of gasoline the user cost approach the theory of the user cost of capital is used to estimate the demand for new and used cars in israel the results demonstrate that the price of operating costs must be included in the demand function they also show that the importance of gasoline price increases with engine size income elasticities are higher for new than for old cars and increase with engine size the inevitability of further increases in gasoline prices implies a further reduction in the average size of cars and a possible decline in the number of cars in the economy unless the trend is moderated by an acceleration in economic growth the future of the us auto industry will depend to a large extent on its ability to compete in the small and medium car markets 13 references 3 tables

the bunch of sustainability labels do consumers differentiate abstract a huge number of sustainable labels addressing the different pillars of sustainability emerged over the last years some labels promote factors which already imply other sustainability issues e g organic incl animal friendliness to a certain extent hence the question arises how consumers react towards the redundancies of different sustainability labels to add to the literature this study applies a latent class model for discrete choices first to test whether consumers take different sustainable labels into account when making their decision and second to test how consumers deal with different sustainable labels that are partly claiming the same aspect results indicate that three consumer segments with well distinguished preferences and willingness to pay measures for the respective attributes can be identified one group being the price sensitives exclusively deciding on the product with the lowest price regardless of any sustainable attribute of the product another group opts for products with a sustainable label without any clear preference for a specific sustainable attribute but expressing a clear willingness to pay more for all presented sustainable labels i e the label choosers a third group can be named price conscious label discriminators for them some sustainable aspects provide negative utility when labelled exclusively e g organic or free of genetically modified organisms but labelled together e g organic together with free of genetically modified organisms or animal welfare it provides them significantly positive utility even though being redundant by definition based on our findings there is no general statement to be made regarding the question whether different sustainable aspects complement or substitute each other the research rather emphasizes that a differentiated look at different consumer types and different labels symbolizing sustainability is needed the research adds to the existing literature by examining not only the relevance and acceptance of different sustainable labels to different consumer segments but also the interrelationship of different sustainable labels the study clearly shows that with regard to different sustainable labels the more the merrier does not always apply however almost 85 of the market could be satisfied with a universal sustainability label

leasing lemons and moral hazard abstract a number of recent papers have analyzed leasing in the new car market as a response to the adverse selection problem in the used car market originally explored in the seminal 1970 paper by george akerlof in this paper we consider a model characterized by both adverse selection as in these earlier papers and moral hazard concerning the maintenance choices of new car drivers we show that this approach provides explanations for a number of empirical findings concerning real world new and used car markets including that leasing has become more popular over time very high income new car drivers lease more and used cars that were leased when new sell for more than used cars that were purchased when new we also compare and contrast our approach to new car leasing with alternative approaches

a new perspective on planned obsolescence automobile manufacturers have long had a policy of introducing annual style changes into their new model cars textbook publishers have a policy of periodically bringing out revised editions of their popular books recently ibm changed the operating system used in its personal computers causing a reduction in the compatibility between its old and new machines if one were to ask the typical man in the street to explain what is happening in these markets he would not hesitate before giving the following answer in economists terminology he would say that for the above firms the incentive to introduce new products that make old units obsolete is too high i e the firms have an incentive to practice planned obsolescence of course just as is true for the man in the street economists have also long observed and commented on the speed with which new products are introduced for example galbraith 1958 suggests that the annual model changes of automobile manufacturers are socially wasteful while fisher griliches and kaysen 1962 provide empirical estimates of the costs of these changes there have also been numerous theoretical attempts to model the idea of planned obsolescence or the related idea of killing off the market for secondhand goods but most of these models have in fact considered the choice a monopolist faces concerning how much durability to build initially into his product rather than the monopolist s incentive to introduce new versions of his product over time 1 in this paper i consider planned obsolescence from the standpoint of a firm that can change the nature of what it sells and show that the man in the street is in fact correct in many settings the incentive for a durable goods monopolist to introduce new products that make old units obsolete will be above that which is socially optimal

planned obsolescence and the r d decision by investing in rd i e the r d choice that maximizes current profitability does not maximize overall profitability the result is that if output is sold rather than rented then in its r d decision the monopolist has an incentive to practice a type of planned obsolescence that lowers its own profitability

the market for used cars new evidence of the lemons phenomenon the lemons model assumes that owners of used cars have an information advantage over potential buyers with respect to the quality of their vehicles owners of bad cars try to sell them to ill informed buyers while owners of good cars hold on to theirs consequently the quality of traded automobiles tends to be sub average in contrast to previous empirical work the following article investigates the behaviour of both buyers and sellers testing for adverse selection by sellers and for quality uncertainty among buyers with a sample consisting of all 1985 cars registered in the swiss canton of basle city over the period 1985 to 1991 our data supports both adverse selection and buyer uncertainty suggesting that a lemons problem exists

the effect of short selling on bubbles and crashes in experimental spot asset markets a series of experiments illustrate that relaxing short selling constraints lowers prices in experimental asset markets but does not induce prices to track fundamentals we argue that prices in experimental asset markets are influenced by restrictions on short selling capacity and limits on the cash available for purchases restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner a simulation model based on delong et al 1990 generates average price patterns that are similar to the observed data asset market bubbles are persistent deviations of prices from fundamentals to the extent that bubbles exist they can influence investment levels and the allocation of capital and thereby have considerable economic effects in recognition of their potential importance the question of the existence and pervasiveness of bubbles has been a focus of extensive empirical investigation see e g shiller 1981 blanchard and watson 1982 diba and grossman 1988 and west 1988 these studies yield mixed results regarding the empirical relevance of bubble phenomena one source of the differences in conclusions may be that because the fundamental value of the assets cannot be observed tests of the presence of bubbles are joint tests with the particular specification of the process guiding the evolution of fundamentals also being tested the availability of short selling is widely believed to make bubble formation less likely one rationale for such a belief is the notion that the cause of asset market bubbles is a constraint on the ability of traders to speculate on future downward price movements see e g miller 1977 jarrow 1980 diamond and verrecchia 1987 or figlewski and webb 1993 in the absence of short sales traders may sell only the shares in their portfolios the availability of short sales relaxes this constraint in this paper we study empirically the effect of allowing short sales on both the incidence and magnitude of market bubbles we choose a setting in which the fundamental value of the asset is clearly and unambiguously defined and known at all times and bubbles typically occur namely we use the experimental environment that smith suchanek and williams 1988 introduce while

costly search with adverse selection solicitation curse versus acceleration blessing we analyze a dynamic trading model of adverse selection where a seller can increase the frequency of strategic price quotes a low quality seller benefits more from trade and therefore searches more intensively than a high quality seller this makes a seller s contact carry negative information but a seller s availability become a stronger indicator of high quality in the stationary environment the two effects exactly offset each other and reducing search costs is weakly beneficial to the seller in the nonstationary environment the relative strengths of the two effects vary over time and reducing search costs can be detrimental to the seller

adverse selection in the used car market evidence from purchase and repair patterns in the consumer expenditure survey we analyze adverse selection in the used car market using a new approach that considers a car as an assemblage of parts some with symmetric information and others with asymmetric information using data from the consumer expenditure survey and consumer reports we examine turnover and repair patterns we find evidence of adverse selection due to the conditions of the transmission engine and during colder months air conditioning and sorting due to the conditions of the vehicle body and during warmer months air conditioning our quantification exercises indicate that adverse selection may have a meaningful effect on trade volume and quality in the secondhand market

the efficacy of state mandated minimum quality certification the case of used vehicles this paper investigates whether the quality certification required by certain state used vehicle disclosure laws has been effective metzger concluded from a theoretical investigation of non market responses to the lemons problem that such laws may or may not be effective we have been unable to find evidence that the currently mandated disclosure requirements in wisconsin known defects provision and iowa safety certification are effective in increasing the number of good quality vehicles traded in those used markets these disclosure requirements do not seem to decrease a prospective buyer s risk of purchasing a lemon

sequential bargaining with correlated values the paper analyzes an infinite horizon sequential bargaining game with one sided offers between a buyer and a seller when the buyer s valuation depends on the seller s the seller knows the value of the object and the buyer does not the influence of relative discount factors on the solution is studied it is shown for example that an impasse may result if the buyer offeror is too impatient relative to the seller the buyer makes a single take it or leave it offer

cherries lemons and the ftc minimum quality standards in the retail used automobile industry the ftc initially considered two forms of regulation in the used automobile market requiring dealers to either certify or warrant the mechanical condition of each automobile sold since the regulation would have been imposed only on dealers and not on private sellers its effectiveness was dependent on the magnitude of the induced shift of sales into the private market accordingly this paper employs a gametheoretic model to examine the theoretical conditions under which society could be expected to benefit from either regulatory alternative among other things it is concluded that a socially beneficial minimum quality standard may not exist in some situations

asymmetric information adverse selection and online disclosure the case of ebay motors since the pioneering work of akerlof 1970 economists have been aware of the adverse selection problem that information asymmetries can create in used goods markets the remarkable growth in online auctions of used goods where buyers generally purchase sight unseen therefore poses a puzzle i argue that given a means for credible information disclosure sellers will voluntarily disclose their private information to buyers through online media this limits information asymmetries and adverse selection to test this theory i examine the role of information in a large online used car market ebay motors i nd that sellers selectively disclose information that information asymmetries are reduced by these disclosures and that online media such as photos text and graphics provide a rich environment for information disclosure

the rich domain of uncertainty source functions and their experimental implementation we often deal with uncertain events for which no probabilities are known several normative models have been proposed descriptive studies have usually been qualitative or they estimated ambiguity aversion through one single number this paper introduces the source method a tractable method for quantitatively analyzing uncertainty empirically the theoretical key is the distinction between different sources of uncertainty within which subjective choice based probabilities can still be defined source functions convert those subjective probabilities into willingness to bet we apply our method in an experiment where we do not commit to particular ambiguity attitudes but let the data speak

learning and asset prices under ambiguous information we propose a new modeling framework to study the asset pricing implications of learning under ambiguity aversion in a continuous time partial information lucas economy we characterize analytically equilibrium equity returns and make the following observations first learning under ambiguity aversion implies an equilibrium discount for ambiguity if and only if relative risk aversion is below one or equivalently the elasticity of intertemporal substitution eis is above one in this case ambiguity aversion increases conditional equity premia and volatilities second equilibrium interest rates are lower irrespective of risk aversion third no time invariant relation between excess returns and conditional variances exists therefore estimated relations between excess returns and equity conditional variances are highly time varying and have an indeterminate sign fourth estimates of the eis based on standard euler equations for equity returns are strongly downward biased in a setting of learning and ambiguity aversion therefore an eis well above one can be consistent with estimates of eis well below one fifth ambiguity does not resolve asymptotically finally using realistic model parameters we show that a low risk aversion and a moderate amount of ambiguity are consistent with the equity premium the low interest rate and the excess volatility puzzles

the demand for cars and gasoline a simultaneous approach abstract this paper develops and estimates a simple model of the demand and supply of cars and gasoline in israel focusing on an individual maximizing his life time utility function under various constraints particular emphasis is placed on the transaction cost in a car purchase and the fact that cars can be characterized by size and age factors which in turn affect running costs and maintenance costs the empirical results show that a change in the price of gasoline and or the price of new cars changes the structure of the stock of cars with respect to engine size

quality differentials and prices are cherries lemons in g a akerlof s market for lemons goods of differential qualities sell under the same standard if no price differentials exist then the low quality goods drive out the high quality goods in cherry markets heterogeneous lots of cherries sell within the same market standard at the time of sale buyers know only the market standard since different qualities sell under the same standard the potential for lemons exists if buyers cannot identify different qualities the authors theoretical and empirical models suggest seller characteristics signal quality to buyers and buyers pay premiums to firms with these characteristics thus cherries are not lemons copyright 1991 by blackwell publishing ltd

bargaining with common values this paper examines a bargaining model with asymmetric information in which the private valuations of the two bargaining agents are correlated it shows that equilibria in such models typically exhibit a significant probability of a significant delay to agreement the paper characterizes the unique perfect bayesian equilibrium to the game in which an uninformed buyer makes offers to a privately informed seller it also shows by example that in this framework bargainers may rationally break off negotiations even in the presence of commonly known gains from trade

a coevolutionary understanding of agroenvironmental change a case study of a rural community in brazil abstract this paper studies the coevolutionary ecological economic dynamics of agro environmental change the case study is santa rosa brazil and the modernization of subsistence agriculture followed by the more recent emergence of organic farming we use coevolution as an integrative framework for explaining how and why economic production changed over time in santa rosa in interdependence with the ecosystem resulting in a mosaic of diverse farm practices a coevolutionary framework expands the explanatory breadth of prevailing accounts of agro environmental change that rely on a notion of shifts from one singular homogeneous production economy to the next it unveils the complex processes driving agro environmental change instead of focusing on the structures resulting from it

sealed bid auctions with ambiguity theory and experiments this study presents a laboratory experiment of the first and second price sealed bid auctions with independent private values where the distribution of bidder valuations may be unknown in our experimental setting in first price auctions bids are lower with the presence of ambiguity this result is consistent with ambiguity loving in a model that allows for different ambiguity attitudes we also find that the first price auction generates significantly higher revenue than the second price auction with and without ambiguity

dynamic sorting in durable goods markets with buyer heterogeneity in a competitive dynamic durable good market where sellers have private information about quality i identify certain inefficiencies that arise due to heterogeneity in buyers valuations even if the market induces dynamic sorting among sellers and all goods are eventually traded inefficiency can arise because high valuation buyers buy early when low quality goods are sold while high quality goods are allocated to low valuation buyers that buy later this misallocation adds to the inefficiency caused by delay in trading under certain circumstances high quality goods may never be traded as in a static market resume triage dynamique dans les marches de biens durables quand il y a heterogeneite des acheteurs dans un marche concurrentiel et dynamique de biens durables ou les vendeurs ont de l information privee sur la qualite l auteur identifie certaines inefficacites attribuables a l heterogeneite dans les evaluations des acheteurs meme si le marche declenche un tri dynamique entre les vendeurs et que tous les biens sont vendus l inefficacite peut emerger parce que les acheteurs qui valorisent le plus le bien achetent tot quand les biens de basse qualite sont vendus alors que les biens de haute qualite sont ecoules plus tard a des acheteurs qui valorisent moins le bien cette mauvaise affectation ajoute a l inefficacite causee par le retard a transiger dans certaines circonstances les biens de haute qualite peuvent ne jamais etre transiges comme dans un marche statique

adverse selection in durable goods markets 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

durable goods monopoly with entry of new consumers this paper analyzes a model of a dynamic monopolist who produces at constant unit cost each period a new cohort of consumers enters the market each entering cohort is identical consumers within a cohort have different tastes for the good my main results are if players are sufficiently patient any positive average profit less than the maximum feasible level can be attained in a subgame perfect equilibrium in the subset of subgame perfect equilibria in which players use stationary strategies the seller cannot make sales at prices significantly greater than the lowest willingness to pay when period length goes to zero and the seller attains the maximum profit when commitment is feasible by charging the same static monopoly price in every period this paper analyzes a model of a dynamic monopolist who operates in a market in which there is a regular flow of new consumers the seller produces a durable good at constant unit cost each period a new cohort of consumers enters the market consumers wish to buy exactly one unit of the item but are willing to wait resales are not allowed each entering cohort is identical

lease valuation when taxable earnings are a scarce resource in this paper we examine leasing as a tax arbitrage instrument analysis of a sample of uk leases presented in this paper suggests that lessors earn large positive npvs our theoretical model seeks to explain these positive npvs in terms of a market price for a scarce resource that we identify as scarce taxable earnings using these prices the model permits a lessor to determine whether the profitability of a proposed set of lease contracts can be improved by writing e different set of contracts that makes better use of the lessor s taxable earnings there may be two reasons why an initial portfolio of contracts may be suboptimal either there may be clienteles or the leasing market may be inefficient subsequently we discuss reasons why the leasing market may be characterized by clienteles and using two different samples of leases we test whether the leasing market is segmented and efficient in this paper we examine leasing as a tax arbitrage instrument with asymmetrical tax positions between lessors and lessees there will be positive net present values npvs to lease transactions see myers dill and bautista 21 analysis of a sample of united kingdom uk leases presented in this paper suggests that lessors earn large positive npvs our theoretical model seeks to explain these positive npvs in terms of a market price for a scarce resource that we identify as scarce taxable earnings there are two implications of our model one for financial intermediaries that act as lessors and the other for financial economists interested in the leasing market the model permits a lessor to determine whether the profitability of a proposed set of lease contracts can be improved upon by writing a different set of contracts that makes better use of the lessor s taxable earnings there may be two reasons why an initial portfolio of contracts that a lessor is about to write may be suboptimal either there may be clienteles because the leasing market

decision theory under ambiguity we review recent advances in the field of decision making under uncertainty or ambiguity we start with a presentation of the general approach to a decision problem under uncertainty as well as the standard bayesian treatment and issues with this treatment we present more general approaches choquet expected utility maximin expected utility smooth ambiguity and so forth that have been developed in the literature under the name of models of ambiguity sensitive preferences we draw a distinction between fully subjective models and models incorporating explicitly some information we review definitions and characterizations of ambiguity aversion in these models we mention the challenges posed by some of the models presented we end with a review of part of the experimental literature and applications of these models to economic settings

effects of ambiguity in market experiments prior studies have shown that individuals are averse to ambiguity in probability many decisions are however made in market settings where an individual s decision is influenced by decisions of others participating in the market in this paper we extend the previous research to evaluate the effect of ambiguity on individual decisions and the resulting market price in market settings we therefore examine an important issue whether ambiguity effects persist in the face of market incentives and feedback two different market organizations the sealed bid auction and the double oral auction were employed the subjects in the experiments were graduate business students and bank executives our results show that the individual bids and market prices for lotteries with ambiguous probabilities are consistently lower than the corresponding bids and market prices for equivalent lotteries with well defined probabilities the aversion to ambiguity therefore does not vanish in market settings our results provide insights into what a manager can expect in bidding situations where the object of the sale oil leases mineral rights involves ambiguity in probability due to for example lack of information or prior experience the results may also be useful in understanding some phenomena in insurance and equity markets

durable good monopolies with rational expectations and replacement sales a monopoly producer of a durable good is examined under the previously uninvoked assumption that the good depreciates and hence that replacement sales must occur if a fixed stock of the good is to be maintained we find two ways in which the no depreciation result that the monopoly will always at least eventually produce a stock equal to that produced by a competitive market may not hold if the length of the trading period is nonzero the limiting stock produced by the firm will be lower than the competitive stock to ensure the profitability of future replacement sales if the firm is able to constrain its production capacity it may choose a constraint that always binds in the sense that it will be impossible for the firm to achieve a stock equal to the competitive stock

institutional emergence in an era of globalization the rise of transnational private regulation of labor and environmental conditions1 why have systems of transnational private regulation recently emerged to certify corporate social and environmental performance different conceptions of institutional emergence underlie different answers to this question many scholars argue that firms create certification systems to solve problems in the market a view rooted in a conception of institutions as solutions to collective action problems the author develops a different account by viewing institutions as the outcome of political contestation and by analyzing conflict and institutional entrepreneurship among a wide array of actors using a comparative case study design the analysis shows how these arguments explain the formation of social and environmental certification associations both theoretical approaches are needed but strong versions of the market based approach overlook an important set of dynamics that the author calls the political construction of market institutions the analysis shows how both problem solving in markets and

consumer demand for automobiles a disaggregated market approach using a disaggregated model and a three stage least squares procedure this paper estimates the demand for automobiles in the u s by size class while the price elasticity of demand in each submarket was significantly greater than one factors such as gasoline prices styling changes and demographic changes influenced each submarket differently

a walrasian theory of markets with adverse selection the paper describes a walrasian theory of markets with adverse selection and shows how refinements of equilibrium can be used to characterize uniquely the equilibrium outcome equilibrium exists under standard conditions it is shown that under certain conditions a stable set exists and is contained in a connected set of equilibria for generic models there exists a stable outcome that is all the equilibria in the stable set have the same outcome these ideas are applied to markets with one sided and two sided uncertainty under standard monotonicity conditions it is shown that the stable outcome is separating and implies a particular pattern of matches of buyers and sellers

a review of bubbles and crashes in experimental asset markets this paper discusses the literature on bubbles and crashes in the most commonly used experimental asset market design introduced by smith et al it documents the main findings based on the results from 41 published papers 3 book chapters and 20 working papers

eliminating the market for secondhand goods an alternative explanation for leasing there are a number of prominent specific instances in which a durable goods manufacturer with significant market power employed a lease only policy i united shoe in the market for shoe machinery ii ibm in the market for computers and iii xerox in the market for copiers the obvious question that arises is why would such a firm prefer leasing over selling in this article i argue that one role of the lease only policy was to eliminate the market for secondhand goods the article formally demonstrates the argument discusses the relationship between this article and earlier literature on secondhand markets and discusses the implications for antitrust policy

confronting the coffee crisis can fair trade organic and specialty coffees reduce small scale farmer vulnerability in northern nicaragua summary this paper links changing global coffee markets to opportunities and vulnerabilities for sustaining small scale farmer livelihoods in northern nicaragua changing governance structures corporate concentration oversupply interchangeable commodity grade beans and low farm gate prices characterize the crisis in conventional coffee markets in contrast certified fair trade and organic are two alternative forms of specialty coffee trade and production that may offer opportunities for small scale producers a research team surveyed 228 farmers to measure the impact of sales on organic and fair trade markets the results suggest that participation in organic and fair trade networks reduces farmers livelihood vulnerability 2004 elsevier ltd all rights reserved

ambiguity and nonparticipation the role of regulation we investigate the implications of ambiguity aversion for performance and regulation of markets in our model agents decision making may incorporate both risk and ambiguity and we demonstrate that nonparticipation arises from the rational decision by some traders to avoid ambiguity in equilibrium these participation decisions affect the equilibrium risk premium and distort market performance when viewed from the perspective of traditional asset pricing models we demonstrate how regulation particularly regulation of unlikely events can moderate the effects of ambiguity thereby increasing participation and generating welfare gains our analysis demonstrates how legal systems affect participation in financial markets through their influence on ambiguity the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

the efficiency of used vehicle markets the case of technological obsolescence and differential repair records this paper examines the effect of technological oboslescence differential maintanance expenditures and differential fuel efficiencies on the depreciated value of automobiles our results support the widely held belief that used vehicle markets are efficient we show that the significant decline in the depreciated values of used automobiles is predominantly due to age we also conclude that technological obsolescence causes a once and for all decrease in the depreciated value of used automobiles that for imported vehicle lines differential maintanance expenditures affect depreciated value and that for domestic vehicle lines differential fuel efficiencies impact depreciated value

on durable goods markets with entry and adverse selection we investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time the model is a dynamic version of akerlof 1970 identical cohorts of durable goods whose quality is known only to potential sellers enter the market over time we show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry market failure is reflected in the length of waiting time before trade the model also provides an explanation of market fluctuations jel classification d82 a propos des marches de biens durables quand il y a entree de nouveaux commercants et selection adverse les auteurs analysent la nature du commerce et du triage engendres par le mecanisme dynamique des prix dans un marche concurrentiel de biens durables quand il y a selection adverse et entree exogene de nouveaux commercants dans le temps ce modele est une version dynamique du modele d akerlof 1970 des cohortes identiques de biens durables dont la qualite est connue seulement des vendeurs potentiels arrivent sur le marche dans le temps il semble qu il y ait plus de commerce actif que ce qui est prevu par un modele statique en particulier on montre qu il existe un equilibre cyclique ou tous les biens sont transiges a l interieur d un nombre fini de periodes apres leur arrivage et que a chaque phase du cycle l eventail de qualite des biens transiges s accroit les commercants qui transigent des produits de plus haute qualite attendent plus longtemps et l imperfection du marche se traduit par la longueur de temps d attente avant la transaction le modele fournit aussi une explication des fluctuations du marche

on the informational role of quantities durable goods and consumers word of mouth communication a dynamic incomplete information game is set up to study the introduction of a durable good when consumers can learn its quality from previous buyers high sales today imply fewer potential buyers tomorrow but each buyer will have better information about the good consumers are fully rational and can update their beliefs even when they do not directly receive information in equilibrium no news is bad news a low quality firm follows a fly by night strategy randomizing over the timing of sales a high quality firm spreads out its sales more smoothly solving a stochastic dynamic programming problem copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association