Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2000-04-06 Number: 00-025/1 Author-Name: Maarten C.W. Janssen Author-Email: janssen@few.eur.nl Author-Workplace-Name: Erasmus University Rotterdam Author-Name: Vladimir Karamychev Author-Email: karamychev@few.eur.nl Author-Workplace-Name: Erasmus University Rotterdam Title: Cycles and Multiple Equilibria in the Market for Durable Lemons Abstract: This discussion paper resulted in an article in Economic Theory (2002). Vol. 20, issue 3, pages 579-601.

We investigate 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. Our main resultis that for any distribution of quality that there exist an infinite number of cyclical equilibria where all goods are traded within a certain number of periods after entering the market. Classification-JEL: D82 Keywords: Dynamic Trading; Asymmetric Information; Entry; Durable Goods File-Url: https://papers.tinbergen.nl/00025.pdf File-Format: application/pdf File-Size: 279522 bytes Handle: RePEc:tin:wpaper:20000025