DFA case lemon
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THE MARKET FOR "LEMONS":
QUALITY UNCERTAINTY AND THE
MARKET MECHANISM*
A.
GEORGE AKERLOF
I. Introduction, 488.-II. The model with automobiles as an example,
489.- III. Examples and applications, 492.- IV. Counteracting institutions,
499. -V. Conclusion, 500.
I. INTRODUCrION
This paper relates quality and uncertainty. The existence of goods of many gradesposes interestingand importantproblemsfor the theory of markets. On the one hand, the interactionof quality differencesand uncertainty may explain important institutions of the labor market. On the other hand, this paper presents a struggling attemptto give structureto the statement:"Businessin underdevelopedcountriesis difficult";in particular,a structureis given the for determining economiccosts of dishonesty. Additionalappliof the theory include commentson the structureof money cations markets, on the notion of "insurability,"on the liquidity of durgoods. ables, and on brand-name are many markets in which buyers use some market
There
statistic to judge the quality of prospectivepurchases. In this case there is incentive for sellers to market poor quality merchandise, since the returnsfor good quality accruemainly to the entire group whose statistic is affected rather
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.
Oxford University Press is collaborating with JSTOR to digitize, preserve and extend access to The Quarterly
Journal of Economics.
http://www.jstor.org
THE MARKET FOR "LEMONS":
QUALITY UNCERTAINTY AND THE
MARKET MECHANISM*
A.
GEORGE AKERLOF
I. Introduction, 488.-II. The model with automobiles as an example,
489.- III. Examples and applications, 492.- IV. Counteracting institutions,
499. -V. Conclusion, 500.
I. INTRODUCrION
This paper relates quality and uncertainty. The existence of goods of many gradesposes interestingand importantproblemsfor the theory of markets. On the one hand, the interactionof quality differencesand uncertainty may explain important institutions of the labor market. On the other hand, this paper presents a struggling attemptto give structureto the statement:"Businessin underdevelopedcountriesis difficult";in particular,a structureis given the for determining economiccosts of dishonesty. Additionalappliof the theory include commentson the structureof money cations markets, on the notion of "insurability,"on the liquidity of durgoods. ables, and on brand-name are many markets in which buyers use some market
There
statistic to judge the quality of prospectivepurchases. In this case there is incentive for sellers to market poor quality merchandise, since the returnsfor good quality accruemainly to the entire group whose statistic is affected rather