Sorting on the Used-Car Market After the Volkswagen Emission Scandal

The disclosure of the VW emission manipulation scandal caused a quasi-experimental market shock to the observable environmental quality of VW diesel vehicles. To investigate the market reaction to this shock, we collect data from a used-car online advertisement platform. We find that the supply of used VW diesel vehicles increases after the VW emission scandal. The positive supply side effects increase with the probability of manipulation. Furthermore, we find negative impacts on the asking prices of used cars subject to a high probability of manipulation. We rationalize these findings with a model for sorting by the environmental quality of used cars.