The Economist | Information asymmetry: Secrets and agents

http://www.economist.com/news/economics-brief/21702428-george-akerlofs-1970-paper-market-lemons-foundation-stone-information?frsc=dg%7Ca

The Economist starts its series of economics briefs with information asymmetry, its beauty lies in its simplicity. Very recently my car failed its MOT. The garage called to say repairs would cost £580 – seeking to exploit my imperfect knowledge of prices and the mechanics of my car. A few phone calls later and I managed to find a local garage willing to do the same repairs for £400. A return call to the original garage found that they would match the price, a saving of £180. I suspect many would not have bothered, I almost said “go ahead” myself, converting consumer surplus into producer surplus in the process. George Akerlof, in his seminal work ‘The market for lemons’, explains that information asymmetry is a very common cause of market failure, when economic thinking at the time was that buyers and sellers had sufficient access to information to make rational decisions, clearly rubbish.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s