Quotulatiousness

September 5, 2016

Asymmetric Information and Used Cars

Filed under: Economics — Tags: , , — Nicholas @ 02:00

Published on 8 Jan 2015

George Akerlof, a Nobel Prize-winning economist, analyzed the theory of adverse selection – which occurs when an offer conveys negative information about what is being offered. In the market for used cars, Akerlof posited that sellers have more information about the car’s quality than buyers. He argued that this leads to the death spiral of the market, and market failure. However, the market has developed solutions such as warrantees, guarantees, branding, and inspections to offset information asymmetry.

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