The Impact of Environmental Fraud on the Used Car Market: Evidence from Dieselgate

Abstract

This study explores how exposure of fraud committed by a durable-goods manufacturer affects secondary markets for that manufacturer’s products. Specifically, we examine the effect of Volkswagen’s 2015 emissions scandal (“Dieselgate”) on the used car market in Israel. Using a difference-in–differences research design and administrative and proprietary data, we find that, after Dieselgate, the number of transactions involving VW-mishandled cars fell by 18\%, and the resale price of these cars fell by 6\%. The drop in the number of transactions was concentrated among private sellers. We discuss alternative explanations and suggest that reputational concerns and adverse selection following Dieselgate could explain our findings.