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The paper's findings have since been applied to many other types of markets. However, Akerlof's research focused solely on the market for used cars. Akerlof's paper uses the market for used cars as an example of the problem of quality uncertainty. It concludes that owners of high-quality used cars will not place their cars on the used car market.
Akerlof is perhaps best known for his article, "The Market for Lemons: Quality Uncertainty and the Market Mechanism", published in the Quarterly Journal of Economics in 1970, in which he identified certain severe problems that afflict markets characterized by asymmetric information, the paper for which he was awarded the Nobel Memorial Prize. [10]
George Akerlof's paper The Market for Lemons [4] introduced a model to help explain a variety of market outcomes when quality is uncertain. Akerlof's primary model considers the automobile market where the seller knows the exact quality of a car. In contrast, the buyer only knows the probability of whether a vehicle is good or bad (a lemon).
It was one of a series of papers to address the important phenomenon of adverse selection in economics, pioneered by the classic study of the lemon problem in used car markets by George Akerlof, [7] and celebrated by the paper by Michael Rothschild and Stiglitz on adverse selection in the insurance market. [8]
As suggested by Akerlof, there are four car types that a buyer could consider. [17] This includes choosing either a new or used car, and choosing a good or bad car, or Lemon as it is more commonly known. When considering the market options there is possibility of purchasing a new lemon car as there is a used good car. [17]
The Central Intelligence Agency on Tuesday became the first major national security agency to offer so-called buyouts to its entire workforce, a CIA spokesperson and two other sources familiar ...
If you've had some cold weather recently, today's look back at history should make you shiver a little less. From Feb. 2-4, 1996, 29 years ago, a frigid arctic outbreak gripped the upper Midwest.
In his papers, Schelling quotes the well-known "The Market for Lemons: Quality Uncertainty and the Market Mechanism" paper written in 1970 by George Akerlof. [8] Similarly, Granovetter cited the Nash Equilibrium game in his papers.