Information and the Market for Lemons

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Information and the Market for Lemons

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Levin, Jonathan

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Jonathan Levin

Abstract

This article revisits Akerlof's (1970) classic adverse-selection market and asks the following question: do greater information asymmetries reduce the gains from trade? Perhaps surprisingly, the answer is no. Better information on the selling side worsens the "buyer's curse," thus lowering demand, but may shift supply as well. Whether trade increases or decreases depends on the relative sizes of these effects. A characterisation is given. On the other hand, improving the buyer's information--i.e., making private information public--unambiguously improves trade so long as market demand is downward sloping. Copyright 2001 by the RAND Corporation.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 32 (2001)
Issue (Month): 4 (Winter)
Pages: 657-66
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Handle: RePEc:rje:randje:v:32:y:2001:i:4:p:657-66

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Paper
- Jonathan Levin, 2001. "Information and the Market for Lemons," Working Papers 01004, Stanford University, Department of Economics. [Downloadable!]

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Paul Belleflamme & Martin Peitz, 2009. "Asymmetric Information and Overinvestment in Quality," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Benjamin Hermalin & Michael Katz, 2006. "Privacy, property rights and efficiency: The economics of privacy as secrecy," Quantitative Marketing and Economics, Springer, vol. 4(3), pages 209-239, September. [Downloadable!] (restricted)
F. Adriani & LG. Deidda, 2006. "The Monopolist’s Blues," Working Paper CRENoS 200611, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia. [Downloadable!]

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