the market for "lemons": quality uncertainty and the market mechanism...

The Market for "Lemons":Quality Uncertainty and the Market Mechanism

淡江大學資訊管理研究所在職專班799630081 陳雅玲799630180 許瀞文

The Quarterly Journal of Economics, Vol. 84, No. 3. (Aug., 1970), pp. 488-500

Author : George A. Akerlof

2011/5/21

Introduction

• Quality and uncertainty• The interaction of quality differences

and uncertainty my explain important institutions of the labor market

• Business in under-developed countries is difficult

Introduction

• Economic costs of dishonesty• Money markets• Insurability• Liquidity of durables• Brand-name goods

The Automobiles Market

• Large price difference between new cars and used cars

• Probability q of a good car• Probability (1-q) of a lemon• After owning a specific car for a length

of time, a new probability is reassigned by the owner

Different Views – Gresham’s Law

• Most cars traded will be the lemons• Good cars may not be traded at all• Like the bad money drives out the good• Both bad and good cars sell the same

price• Both buyer and seller can tell• Instructive but not complete

Asymmetrical Information

• Price of the automobile, p• The average quality of used cars,• =>• The supply of used cars and the average

quality depend on the price• => • Supply equals Demand

=>

Asymmetrical Information

• Utility theory

Asymmetrical Information

• Assume• Both type 1 and type 2 traders are von

Neumann-Morgenstern maximizers of expected utility

• Group 1 has N cars with uniformly distributed quality x,

• Group 2 has no cars• The price of others goods M is unity

Asymmetrical Information

• Income of type 1 traders • Income of type 2 traders• The demand for used cars will be the sum of

the demands of both groups

Asymmetrical Information

Symmetrical Information

• Suppose that the quality of all cars is uniformly distributed,

Examples and Applications

• Insurance• The Employment of Minorities• The Costs of Dishonesty• Credit Markets in Underdeveloped Countries

Insurance

• people over 65 have great difficulty in buying medical insurance.– The natural question arises: why

doesn't the price rise to match the risk?

Adverse Selection

• insurance textbooks– Generally speaking policies are not

available at ages materially greater than sixty-five. . . . The term prcmiums are too high for any but the most pessimistic (which is to say the least healthy) insureds to find attractive. Thus there is a severe problem of adverse selection at these ages.

Insurance

• Group insurance

• welfare economics

The Employment of Minorities

• profit maximization

• Good quality schooling ＝ Good substitute

The Employment of Minorities

• T. W. Schultz writes, – "The educational establishment discovers

and cultivates potential talent. The capabilities of children and mature students can never be known until found and cultivated."

The Employment of Minorities

• George Stigler – "in a regime of ignorance Enrico Fermi

would have been a gardener, Von Neumann a checkout clerk at a drugstore."

The Costs of Dishonesty

• Dishonesty in business is a serious problem in underdeveloped countries.

Credit Markets in Underdeveloped Countries

• India– managing agencies

• Cooperative Movement

Credit Markets in Underdeveloped Countries

Credit Markets in Underdeveloped Countries

Counteracting Institutions

• guarantees• brand-name• chains

– hamburger interurban highways• license

– doctors, lawyers, and barbers

Conclusion

• TRUST

• game theorists

來源 : http://www.auto-lemon.com/

The Market for "Lemons":Quality Uncertainty and the Market Mechanism

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淡江大學資訊管理研究所在職專班799630081 陳雅玲799630180 許瀞文