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Information and the Market for Lemons

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  • Jonathan Levin

Abstract

March 2001 This paper 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 characterization 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. Working Papers Index

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Bibliographic Info

Paper provided by Stanford University, Department of Economics in its series Working Papers with number 01004.

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Date of creation: Mar 2001
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Handle: RePEc:wop:stanec:01004

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Cited by:
  1. Einav, Liran & Finkelstein, Amy & Levin, Jonathan, 2009. "Beyond Testing: Empirical Models of Insurance Markets," Department of Economics, Working Paper Series qt90g407hf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Juan Escobar, 2008. "Cooperation and Self-Governance in Heterogeneous Communities," Discussion Papers 07-038, Stanford Institute for Economic Policy Research.
  3. Adriani, Fabrizio & Deidda, Luca G., 2009. "Price signaling and the strategic benefits of price rigidities," Games and Economic Behavior, Elsevier, vol. 67(2), pages 335-350, November.
  4. Silvia Martínez-Gorricho, 2014. "Information and consumer fraud in a signalling model," Working Papers. Serie AD 2014-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Brendan Daley & Brett Green, 2012. "Waiting for News in the Market for Lemons," Econometrica, Econometric Society, vol. 80(4), pages 1433-1504, 07.
  6. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy: Extended Version," MPRA Paper 37816, University Library of Munich, Germany.
  7. Ennio Bilancini & Leonardo Boncinelli, 2014. "Dynamic Adverse Selection and the Supply Size," Center for Economic Research (RECent) 099, University of Modena and Reggio E., Dept. of Economics.
  8. 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, vol. 36(1), pages 1-16, February.
  9. Saak, Alexander E., 2009. "Private information in monopoly with random participation," Economics Letters, Elsevier, vol. 102(2), pages 67-69, February.
  10. Belleflamme, Paul & Peitz, Martin, 2014. "Asymmetric information and overinvestment in quality," European Economic Review, Elsevier, vol. 66(C), pages 127-143.
  11. Gorton, Matthew & Dumitrashko, Mikhail & White, John, 2006. "Overcoming supply chain failure in the agri-food sector: A case study from Moldova," Food Policy, Elsevier, vol. 31(1), pages 90-103, February.
  12. Ian Jewitt & Clare Leaver & Heski Bar-Isaac, 2014. "Asymmetric Information and Adverse Selection," Economics Series Working Papers 695, University of Oxford, Department of Economics.
  13. Herweg, Fabian & Müller, Daniel, 2013. "Overconfidence in the Markets for Lemons," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 452, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  14. Saak, Alexander E., 2006. "The optimal private information in single unit monopoly," Economics Letters, Elsevier, vol. 91(2), pages 267-272, May.
  15. 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.
  16. 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.
  17. Dang, Tri Vi & Felgenhauer, Mike, 2012. "Information provision in over-the-counter markets," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 79-96.

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