1970
The Market for Lemons
Why bad used cars, bad insurance pools, and bad job markets happen — asymmetric information, made rigorous.
“The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”
Quality uncertainty
Akerlof's used-car market: sellers know the lemon; buyers do not. Rational buyers discount all cars. Owners of good cars withdraw. The market collapses or fills with junk. Adverse selection in one story.
Beyond cars
The model applies to insurance, labor markets, finance, and any credential that is costly to verify. Information asymmetry is not a footnote; it shapes equilibrium.
With crypto and search
Read next to Bitcoin and PageRank: both are responses to trust and information problems in different domains. Economics papers age; this one does not.
- collection
Four papers that explain most of the economic behaviour you will see this week.
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Computing Machinery and Intelligence
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