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Market Behaviour, Information Asymmetries and Product Qualities

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  • Gilroy, Bernard Michael
  • Broll, Udo

Abstract

The importance of informational aspects of market processes has received considerable attention. This paper considers the problem of adverse selection and the possible outcomes under different risk behaviour assumptions.The paper is structured as follows : section II presents briefly some general implications of risk aversive behaviour. Two common measures of risk are introduced and the possibility of using a mean-variance analysis in considering types of risk behaviour is discussed. Section III then analyses Akerlof's model under the assumption of risk aversive behaviour. It is shown that the introduction of risk aversive behaviour strengthens the adverse selection process, having an even greater negative effect upon the market structure. Finally, section IV draws some general conclusions about the process of adverse selection and briefly discusses possible counteracting institutions.

Suggested Citation

  • Gilroy, Bernard Michael & Broll, Udo, 1988. "Market Behaviour, Information Asymmetries and Product Qualities," MPRA Paper 18655, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:18655
    as

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    References listed on IDEAS

    as
    1. Broll, Udo & Gilroy, Michael B, 1986. "Collateral in Banking Policy and Adverse Selection," The Manchester School of Economic & Social Studies, University of Manchester, vol. 54(4), pages 357-366, December.
    2. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
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    More about this item

    Keywords

    Market processes; market behaviour; information asymmetries; product quality;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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