Lemons problem

Lemons problem

Named after 2001 Nobel Laureate George Akerlof's 1970 paper "The Market for Lemons". His original example had to do with used cars. Why does the seller want to get rid of the car? It might be a lemon. The buyer and seller have asymmetric information. Hence, the buyer will demand a deep discount on the car because of the possibility it is a lemon.

Lemons Problem

The problem of asymmetric information in investing. In most investments, the buyer takes a risk that the seller is trying to sell because he/she knows that the investment is a lemon, that is, a nearly guaranteed loss. To compensate for the lemons problem, many buyers offer prices lower than they otherwise would in a perfectly symmetrical market.
References in periodicals archive ?
This indicates more homogeneity in the range of retail agreements at the lower end of the market, lending further support to the hypothesis that the existence of the Lemons Problem generates "race to the bottom" incentive processes in the provision of Internet access networks.
Even if there are a large number of buyers of high quality products and sellers willing to meet their demand, the existence of the so-called Lemons Problem can generate markets where low quality goods dominate since providers of high quality goods cannot credibly signal the quality of their products due to the noise from their low quality rivals.
The approach to valuation and the derivation of target prices that we presented in our re-initiation report RUSSIAN BANKS: The Lemons Problem (released 9 Nov 2011) was based primarily on a stresstest scenario for the sector.
This occurs from the association of a lemons problem in the issue of new capital (a lemons problem is the problem of existing information asymmetry in a market).
The use of auction markets to study the various issues associated with the lemons problem is somewhat novel.
The lower internet price results from a combination of reduced transactions costs and the lemons problem.
Unfortunately, a simple lemons problem occurs for pension plans that wish to fund ETIs.
If this happens repeatedly, they stay out of the apple market, so we have a lemons problem (undersupply of nonrotten apples).
As we outlined in our report The Lemons Problem, some sectors are now in worse shape than in pre-crisis 1H08.
We stick to the views expressed in our note RUSSIAN BANKS: The Lemons Problem released 9 Nov 2011.
This morning (9 Nov) we release Russian Banks: The Lemons Problem in which we reinitiate
2) From this point of view, loans should not be saleable in the capital markets because of lemons problems.