Information and the Market for Lemons

Posted: 19 Nov 2001

See all articles by Jonathan Levin

Jonathan Levin

Stanford Graduate School of Business; Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

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

Suggested Citation

Levin, Jonathan D., Information and the Market for Lemons. Available at SSRN: https://ssrn.com/abstract=290609

Jonathan D. Levin (Contact Author)

Stanford Graduate School of Business ( email )

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Stanford University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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