Lemons problem

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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
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References in periodicals archive ?
George Akerlof won the Nobel Prize in part for his paper The Market for Lemons, in which he showed how markets with imperfect information could lead to serious problems.
Nobel Memorial Prize in Economic Sciences recipient George Akerlof was the first to discuss the negative consequences of information asymmetry in his 1970 paper, "The Market for Lemons: Quality Uncertainty and the Market Mechanism".
Other economists' work - for example, George Akerlof's seminal paper on the market for lemons - had laid the foundations for this research on price rigidities.
"This arises in part because the market for Android security today is like the market for lemons: there is information asymmetry between the manufacturer, who knows whether the device is currently secure and will receive updates, and the consumer, who does not," the paper says.
ySTANBUL (CyHAN)- George Akerlof published his famous article "The Market for Lemons" in 1970.
In George Akerlof's seminal paper "The Market for Lemons," he noted that markets can fail when information asymmetry is too high.
George Akerlof, The Market for Lemons: Quality Uncertainty and the Market Mechanism, 1970
"The Market for Lemons: Quality Uncertainty and the Market Mechanism." Quarterly Journal of Economics 84: 488-500.
In a famous article published in 1970, "The market for Lemons: quality uncertainty and the market mechanism", George Akerlof introduces an idea, which is simple but also of deep and universal significance.
George Akerlof, "The Market for Lemons: Quality Uncertainty and the Market Mechanism," Quarterly Journal of Economics 84, 1970, pp.
This paper takes a fresh look at the issues of quality, asymmetric information, and uncertainty in the context of the market for lemons, as labeled by George Akerlof (1970) in a classic article three decades ago.