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Information and the Market for Lemons

2001; Wiley; Volume: 32; Issue: 4 Linguagem: Inglês

10.2307/2696386

1756-2171

Jonathan Levin,

Game Theory and Applications

This paper revisits Akerlofs (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 buyers curse, thus lowering demand, but may shift supply as well. Whether trade increases or decreases depends on the relative sizes of these effects. A characteization is given. On the other hand, improving the buyers information i.e. making private information public unambiguously improves trade so long as market demand is downward sloping.