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Here is the most classic and widely cited paper ever on market failure when customers can't tell what's good and what's a lemon: The Market for "Lemons": Quali
by smallnamespace 8y ago
Here is the most classic and widely cited paper ever on market failure when customers can't tell what's good and what's a lemon:
The Market for "Lemons": Quality Uncertainty and the Market Mechanism
https://www.sas.upenn.edu/~hfang/teaching/socialinsurance/readings/fudan_hsbc/Akerlof70(2.1).pdf https://www.sas.upenn.edu/~hfang/teaching/socialinsurance/re...
It's strikingly prescient that Akerlof mentions 'group insurance' as another market that is rife for failure due to a slightly different mechanism. Here we are 50 years later failing to understand this economic lesson.
- deleted 8y ago[deleted]
- fjsolwmv 8y agoThat paper is interesting because it proved that the used car market doesn't exist. A proof of a false result is not a good proof.
- smallnamespace 8y agoIt didn't 'prove' used car markets don't exist, it showed that naive car markets with high amounts of information asymmetry can't exist, and in fact they don't. All real used car markets have multiple layers of either testing and warrantying (which solves or reduces the asymmetry to a manageable level), legal remedies (many states have 'lemon laws' that push liability back to the seller), or are filled with sophisticated buyers (e.g. car auctions) who can actually tell which car is a 'lemon' because they bring a trained mechanic who will inspect the car in person.
- gonzo 8y ago> many states have 'lemon laws' that push liability back to the seller It’s not that many, and they don’t work that well. https://www.edmunds.com/auto-warranty/my-used-cars-a-lemon-am-i-stuck-with-it.html https://www.edmunds.com/auto-warranty/my-used-cars-a-lemon-a...