Time：May 6, Thu. 12:00-14:00

Venue：National School of Development, Fl 1 Classroom

Topic: Innovation adoption and consumer learning in a lemon market: evidence from electric vehicle market in China

Policy makers usually provide subsidies to encourage adoption of innovative technologies. The subsidies are often given out at the early deployment stage of a new technology and aims for sustainable growth of the industry. However, the adoption of new technologies always involves asymmetric information. As proved in Akerlof 1970, asymmetric information would lead to market shrinkage in a second-hand market. Using data from the electric vehicle (EV) market in China from 2015 to 2018, this paper demonstrates that the lemon market problem could also happen in a new product market. If more low-quality products enter into the market, consumers would form low beliefs on the entire technology, which would negatively affect all the firms in the market. Our results suggest that the EV market share could increase by 5 percent with a one percent decrease in the sales of low-quality EVs. A poorly-designed EV subsidy may generate negative impacts on the growth of the industry by encouraging the entry of lemons.