4 min read.Updated: 19 Apr 2022, 10:20 PM ISTSatya Mohanty
Shifting entry standards offer a parallel with the low-quality outcomes of George Akerlof’s market model
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In 1970, George Akerlof wrote his famous paper on a market for lemons, for which he got a Nobel Prize in Economics. This was a strong intuition about a used car market under asymmetric information; here, sellers know the defects of their vehicles, while the buyers don’t. Sellers of the worst cars are the keenest to sell, while buyers fear they will get ‘lemons’ (bad cars). Suspicion drives down the prices of all cars, and so good cars stay out of the market. This is a case of low-quality cars driving out good quality, which is an adverse market outcome.