Adverse Selection

Reading: Akerlof, G.A., 1970, “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism“. Quarterly Journal of Economics 84(3):488–500 (£)

Textbook Reading: Chapter 3 (Section 3.4; pp. 90-96)

Group activity:

  • If you are a bit daunted by an academic article, George Akerlof wrote a very interesting essay on how he came up with the ideas and the process of working on the topic. You can read it at the Nobel site.
  • Further reading: Secrets and agents“, The Economist, July 23rd 2016

Here’s a good video explaining the lemons problem:

Learning Objectives: Think critically about the role of asymmetric information on market performance

Cutting edge theory: Product heterogeneity and customisation

Focus on diversity: Amy Finkelstein, of MIT, was featured by The Economists 2008 list of emerging economists for her work on asymmetric information in health insurance. She won the John Bates Clark medal in 2012.

Spotlight on sustainability: Importance of long term reputational effects of short term strategic choices

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