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Information and the Market for Lemons

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  • Levin, Jonathan

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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Bibliographic Info

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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Cited by:
  1. Gorton, Matthew & Dumitrashko, Mikhail & White, John, 2006. "Overcoming supply chain failure in the agri-food sector: A case study from Moldova," Food Policy, Elsevier, Elsevier, vol. 31(1), pages 90-103, February.
  2. Liran Einav & Amy Finkelstein & Jonathan Levin, 2010. "Beyond Testing: Empirical Models of Insurance Markets," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 2(1), pages 311-336, 09.
  3. Herweg, Fabian & Müller, Daniel, 2011. "Overconfidence in the Market for Lemons," Discussion Papers in Economics, University of Munich, Department of Economics 12411, University of Munich, Department of Economics.
  4. Juan Escobar, 2008. "Cooperation and Self-Governance in Heterogeneous Communities," Discussion Papers, Stanford Institute for Economic Policy Research 07-038, Stanford Institute for Economic Policy Research.
  5. Bart Wilson & Arthur Zillante, 2010. "More Information, More Ripoffs: Experiments with Public and Private Information in Markets with Asymmetric Information," Review of Industrial Organization, Springer, Springer, vol. 36(1), pages 1-16, February.
  6. Brendan Daley & Brett Green, 2012. "Waiting for News in the Market for Lemons," Econometrica, Econometric Society, Econometric Society, vol. 80(4), pages 1433-1504, 07.
  7. Silvia Martínez-Gorricho, 2014. "Information and consumer fraud in a signalling model," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2014-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  8. Dang, Tri Vi & Felgenhauer, Mike, 2012. "Information provision in over-the-counter markets," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 21(1), pages 79-96.
  9. Adriani, Fabrizio & Deidda, Luca G., 2009. "Price signaling and the strategic benefits of price rigidities," Games and Economic Behavior, Elsevier, Elsevier, vol. 67(2), pages 335-350, November.
  10. Benjamin Hermalin & Michael Katz, 2006. "Privacy, property rights and efficiency: The economics of privacy as secrecy," Quantitative Marketing and Economics, Springer, Springer, vol. 4(3), pages 209-239, September.
  11. Saak, Alexander E., 2006. "The optimal private information in single unit monopoly," Economics Letters, Elsevier, Elsevier, vol. 91(2), pages 267-272, May.
  12. Ennio Bilancini & Leonardo Boncinelli, 2014. "Dynamic Adverse Selection and the Supply Size," Center for Economic Research (RECent), University of Modena and Reggio E., Dept. of Economics 099, University of Modena and Reggio E., Dept. of Economics.
  13. F. Adriani & LG. Deidda, 2006. "The Monopolist’s Blues," Working Paper CRENoS, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia 200611, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  14. Ian Jewitt & Clare Leaver & Heski Bar-Isaac, 2014. "Asymmetric Information and Adverse Selection," Economics Series Working Papers, University of Oxford, Department of Economics 695, University of Oxford, Department of Economics.
  15. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy: Extended Version," MPRA Paper 37816, University Library of Munich, Germany.
  16. Saak, Alexander E., 2009. "Private information in monopoly with random participation," Economics Letters, Elsevier, Elsevier, vol. 102(2), pages 67-69, February.
  17. Belleflamme, Paul & Peitz, Martin, 2014. "Asymmetric information and overinvestment in quality," European Economic Review, Elsevier, Elsevier, vol. 66(C), pages 127-143.

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