Henry S. Schneider

Agency Problems and Reputation in Expert Services: Evidence from Auto Repair

Using a field experiment involving undercover visits to auto repair garages with a test vehicle, I first examine how asymmetric information between mechanics and motorists over auto repair service quality affects outcomes. I then examine whether reputation mitigates these problems via a matched‐pair treatment in which undercover researchers appeared as either one‐time or repeat‐business customers. The results indicate that under and overtreatment are widespread, and that reputation via a repeat business mechanism does not improve outcomes significantly.

Moral Hazard in Leasing Contracts: Evidence from the New York City Taxi Industry

In this study, I investigate the effects of moral hazard in leasing contracts by examining the driving outcomes of all long-term lessees and owner-operators of New York City taxis. I find that moral hazard explains a sizable fraction of lessees’ accidents, driving violations, and vehicle inspection failures. To address the possibility of endogenous contract choice, I conduct an instrumental variables analysis of the cross section of all drivers and a panel-data analysis of a subset of drivers who switched from leasing to owning.

Adverse Selection in the Used-Car Market: Evidence from Purchase and Repair Patterns in the Consumer Expenditure Survey

type=main> 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 Role and Growth of New-Car Leasing: Theory and Evidence

There 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.

The Economics of Retail Markets for New and Used Cars

In this chapter we describe the institutions and economics of newand used-car retailing. Our aim is to provide a resource for researchers interested in the automobile market. We focus on three categories of economic concepts relevant to car retailing: dealership location choice, including agglomeration, entry, and exit; determinants of car pricing; and information, which is central to the used-car market but also affects the newcar market. We also provide a primer on the institutions of car retailing and a reference on data sources for researchers interested in empirical work involving cars. 1 We thank George Iny of the Automobile Protection Association for providing very helpful comments on an earlier draft.

Beautiful Lemons: Adverse Selection in Durable-Goods Markets with Sorting

We document a basic characteristic of adverse selection in secondhand markets for durable goods: goods with higher observed quality may have more adverse selection and hence lower unobserved quality. We provide a simple theoretical model to demonstrate this result, which is a consequence of the interaction of sorting between drivers over observed quality and adverse selection over unobserved quality. We then offer empirical support using data on secondhand prices and repair rates of used cars from the Consumer Expenditure Survey, and discuss a number of implications for everyday advertising and consumer questions. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2016.2495. This paper was accepted by J. Miguel Villas-Boas, marketing.

Limited rationality and the strategic environment: Further theory and experimental evidence

The psychology and behavioral economics literatures show that real world decision making at the individual level is frequently inconsistent with the rational actor model. An important question is therefore the extent to which a proportion of agents who make mistakes affects market level outcomes. Previous theoretical and experimental research showed that market level outcomes are less likely to match the rational actor model in settings characterized by strategic complementarity and more likely in settings characterized by strategic substitutability. We extend this research both theoretically and experimentally by introducing important real world complications – specifically, periodic shocks to the payoff structure and a periodic inflow of inexperienced players. We find that these complications can significantly slow convergence to rational actor equilibrium play, possibly even indefinitely.

Forgetting and Heterogeneity in Task Delay: Evidence from New York City Parking-Ticket Recipients

We study response behavior of New York City parking-ticket recipients, analyzing administrative data on 6.6 million tickets issued to 2 million individuals over two years. Using variation in the timing of reminder letters, we find evidence consistent with significant forgetting. But we find large differences across individuals, and, importantly, those with a low baseline propensity to respond to tickets–a natural nudge target–react least to reminders. These low-response types, who incur significant late penalties, disproportionately come from already disadvantaged groups. They do react strongly to more incentive-based interventions. We discuss how accounting for effect heterogeneity might change one’s approach to policy, and how one might use our analysis to target interventions at low-response types.