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Introduction

The Impact and Influence

The cost of dishonesty

  • Thoughts before

Price of pristine used car

Highest Price Buyer will pay

  • Initital difficulty in getting published

Price of a lemon

  • Trivial ?

Sellers Exit Market

  • Frequently Cited

New Highest Price Buyers are willing to pay

More Sellers Exit

  • Seminal Paper in the field of Aysmmetric information

Soon there could be no market at all

The Market for Lemons

VS

  • Illustrates effects of uncertainty and asymmetric information on markets
  • The Automobile Market
  • Lemons and Peaches
  • Buyers and Sellers
  • Aysmmetric Information

The Market for Lemons

Introduction

  • George Arthur Akerlof
  • "The Market for Lemons: Quality Uncertainty and the Market Mechanism"
  • Published in 1970, in the Quarterly Journal of Economics

  • In 2001, Awarded Nobel Prize in Economics

Examples

&

Applications

By George Akerlof

Less Risky

  • Market with asymmetric information

Health Insurance

  • Adverse Selection - increased incentives for the risky

Neutral

  • But are people risk averse?
  • Insurance Prices in practice

Risky

Indian Credit Markets

  • Differences in Lending rates
  • When is credit granted?
  • The prevention of arbitrage

How we prevent Lemon Markets

The Market for Drugs

  • Contracts
  • Licencing
  • Guarantees
  • Chains
  • Branding

Any Questions ?

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