Cycles and Multiple Equilibria in the Market for Durable Lemons
The paper investigates the nature of market failure in a dynamic version of Akerlof (1970) where identical cohorts of a durable good enter the market over time. In the dynamic model, equilibria with qualitatively different properties emerge. Typically, in equilibria of the dynamic model, sellers with higher quality wait in order to sell and wait more than sellers of lower quality. The main result is that for any distribution of quality there exist an infinite number of cyclical equilibria where all goods are traded within a certain number of periods after entering the market.
|Keywords||asymmetric information, durable goods, dynamic trading, entry|
|Persistent URL||dx.doi.org/10.1007/s00199-001-0236-9, hdl.handle.net/1765/11638|
Janssen, M.C.W., & Karamychev, V.A.. (2002). Cycles and Multiple Equilibria in the Market for Durable Lemons. Economic Theory, 20(3), 579–601. doi:10.1007/s00199-001-0236-9