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 ?
Occupational licensing can then essentially solve a lemons problem. Consider electricians.
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).
Avoiding the potential "lemons problem" is more difficult because legal and accounting constraints require the SPV to be separate from the sponsor.
This is Akerlof's (1970) familiar Lemons Problem. Second, like Smith's directors, the blues musician's ability and willingness to work can be affected by the asset sale itself.
Once again, as in the used-car market and the insurance industry, a "lemons problem" arises.
The use of auction markets to study the various issues associated with the lemons problem is somewhat novel.
(10.) This is a classic "lemons problem" (so named after transactions in used cars).
In Li [1998] I show in a pure barter economy that under certain circumstances, middlemen emerge endogenously to ameliorate the lemons problem in the exchange of goods.
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).