Information Reliability and Market Outcomes

• 成果类型: Article
• 署名作者: Cho, Chihoon; Frankel, Richard; Martin, Xiumin
• 署名单位: Washington University (WUSTL)
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.03758
• 发表日期: 2024
• 页码: 6255-6279
• 关键词: Information asymmetry; adverse selection; reliability; disclosure; public enforcement; liquidity; lemons penalty; LAW

摘要

We study the used car market to understand how public enforcement that intends to increase information reliability affects disclosure, pricing, and liquidity. In 1986, federal rules mandated the creation of odometer records, and states enforced the law in a staggered fashion. We find that used car asking-price sensitivity to mileage increases by 32.6%, and mileage disclosure in classified ads increases by 23.4%. The findings suggest that strengthened law enforcement increases odometer credibility and enhances market participants' use of that information. We also show significant improvement in market outcomes: a 9.7% increase in asking price and a 13.4% increase in transaction speed, as reflected in the reduction in repeated ads. The price effect arises irrespective of whether ads contain mileage disclosure, whereas the liquidity effect arises mainly through disclosure. Our study shows public enforcement can benefit the market by improving information credibility.