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There is a massive negative externality for allowing scammers to run free in a situation where the upfront ability to assess fitness-of-goods is lacking. https

by throwaway2048 9y ago

There is a massive negative externality for allowing scammers to run free in a situation where the upfront ability to assess fitness-of-goods is lacking. https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons the money quote being The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.

Jabanga 9y ago
That's not an externality. An honest business is not entitled to any customer's business. If the customer wants to squander their money away at the casino, leaving them with no money to spend at the honest business, they have that right. It's their money, and they are not obligated to spend it at the honest business. And in any case, the market for lemons is a theoretical exercise. It does not actually happen in real markets, because there are various market mechanisms that emerge to address it.
- throwaway2048 9y ago
  the point isn't about anyone's "rights" about having money spent on them/spending their money. The point is that everyone is worse off in a situation like this, both customer and (legitimate) business. It is a type of market failure, everyone loses.
  - gbhn 9y ago
    I think this is a special case of Gresham's law that bad currency drives out good. The problem is information asymmetry. You may be trying to buy SEC securities, but if they are swamped with fakes, it causes huge friction costs to figure out whether to transact and that hurts the market. Only experts (accredited investors?) have the resources to play.
  - Jabanga 9y ago
    Everyone is not worse off. We have seen rapid innovation in the Bitcoin market, toward far better risk management and security practices, in the absence of regulatory restrictions. Some speculative claim that everyone is worse off if they're free doesn't justify robbing someone of their rights.
- kenko 9y ago
  > And in any case, the market for lemons is a theoretical exercise. It does not actually happen in real markets, because there are various market mechanisms that emerge to address it. The "market mechanisms" you speak of are government regulations establishing minimum standards and forms of redress (e.g., and most on the nose, lemon laws).
  - Jabanga 9y ago
    No, there are market mechanisms that address this as well. Government restrictions are not market mechanisms.

Jabanga 9y ago

That's not an externality. An honest business is not entitled to any customer's business. If the customer wants to squander their money away at the casino, leaving them with no money to spend at the honest business, they have that right. It's their money, and they are not obligated to spend it at the honest business. And in any case, the market for lemons is a theoretical exercise. It does not actually happen in real markets, because there are various market mechanisms that emerge to address it.

throwaway2048 9y ago
the point isn't about anyone's "rights" about having money spent on them/spending their money. The point is that everyone is worse off in a situation like this, both customer and (legitimate) business. It is a type of market failure, everyone loses.
- gbhn 9y ago
  I think this is a special case of Gresham's law that bad currency drives out good. The problem is information asymmetry. You may be trying to buy SEC securities, but if they are swamped with fakes, it causes huge friction costs to figure out whether to transact and that hurts the market. Only experts (accredited investors?) have the resources to play.
- Jabanga 9y ago
  Everyone is not worse off. We have seen rapid innovation in the Bitcoin market, toward far better risk management and security practices, in the absence of regulatory restrictions. Some speculative claim that everyone is worse off if they're free doesn't justify robbing someone of their rights.
kenko 9y ago
> And in any case, the market for lemons is a theoretical exercise. It does not actually happen in real markets, because there are various market mechanisms that emerge to address it. The "market mechanisms" you speak of are government regulations establishing minimum standards and forms of redress (e.g., and most on the nose, lemon laws).
- Jabanga 9y ago
  No, there are market mechanisms that address this as well. Government restrictions are not market mechanisms.