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The Market for Lemons
119
Transcript
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
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