the market for "lemons": quality uncertainty and the market mechanism...
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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
THANK YOU
淡江大學資訊管理研究所在職專班799630081 陳雅玲799630180 許瀞文