The Market for "Lemons":
Quality Uncertainty and the Market Mechanism
Author : George A. Akerlof
The Quarterly Journal of Economics, Vol. 84, No. 3. (Aug., 1970), pp. 488-500
淡江大學資訊管理研究所在職專班
799630081 陳雅玲
799630180 許瀞文
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