Is That New Car Smell Lemony?
In a Fox News piece, University of Maryland economist John Lott questions the notion that the sales price of a car plunges as soon as you drive it off the lot:
Many economists explain this drop as occurring because the people who are trying to resell their cars quickly are typically doing so to get rid of "lemons." Even if your virtually new car isn't a lemon, people who want to buy your car can't be sure, so they aren't willing to pay as much as your virtually new non-lemon car is really worth….Nice story—except it's wrong.
Lott notes that the seller of a used car can reassure the buyer by having the car's condition professionally certified, by offering a money-back guarantee, or by transferring the manufacturer's warranty. Such techniques, he argues, should enable the seller of an almost-new car to get close to the original price. Sure enough, Lott's analysis of used car prices in the Philadelphia area found that "used cars with only a few thousand miles on them sell for almost the same price as when new." He reports that "the certified used car price was on average just three percent less than the new car MSRP," compared to the 25 percent drop in value estimated by University of Chicago economist Steven Levitt and New York Times writer Stephen Dubner in their bestseller Freakonomics.
Lott, whose new book is called Freedomnomics, has sparred with Levitt before, suing him for defamation over his disparaging comments about Lott's research on right-to-carry gun laws and crime. In January a federal judge dismissed the part of his suit based on a passage in Freakonomics that concludes, "Regardless of whether the data were faked, Lott's admittedly intriguing hypothesis doesn't seem to be true," since "when other scholars have tried to replicate his results, they found that right-to-carry laws simply don't bring down crime." The Chronicle of Higher Education reports that Levitt recently agreed to settle the rest of the suit by sending a "letter of clarification" to a third economist, John B. McCall, with whom he corresponded in 2005 about Lott's work on a special 2001 issue of The Journal of Law & Economics devoted to gun issues. Levitt erroneously told McCall that the issue "was not a peer-refereed edition of the Journal" and asserted that Lott had "put in only work that supported him." Levitt neglected to mention that he'd been invited to participate and declined.
The settlement makes Levitt look sloppy, but the lawsuit makes Lott look touchy. I'm not sure who comes out ahead, except those who enjoy academic sniping as a spectator sport.
Here is Dan Polsby's 1998 review of of Lott's book More Guns, Less Crime; the reason interview that Michael Lynch and I did with Lott in 1999; Robert Ehrlich's 2001 critique of Lott's work; and Lott's response. Fans of Lottiana, of course, won't want to miss Julian Sanchez's 2003 unveiling of Mary Rosh, an episode also mentioned in Freakonomics.