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Revisiting the Lemons Market
Author(s) -
Kessler Anke S.
Publication year - 2001
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00099
Subject(s) - stylized fact , adverse selection , economics , microeconomics , database transaction , quality (philosophy) , welfare , information asymmetry , perfect competition , econometrics , computer science , market economy , philosophy , epistemology , macroeconomics , programming language
This article extends the standard competitive adverse selection model by allowing for qualitatively different information structures of agents on the informed side of the market. Using the stylized framework of the market for used cars, we examine the welfare properties of equilibria under the assumption that a fraction of the sellers remains uninformed about a parameter that is relevant for their own transaction. Whether market performance increases or decreases in the number of uninformed sellers is shown to depend on (1) the potential gains from trade in the market and (2) the average quality of the sellers' information structure.