The Market for Lemons article has a Nobel Price and written by George A.
Akerlof. The problem called as a lemon
because troubled automobile car market in US common parlance is known as this
kind of lemon cars. Automobile market and the concretization of the topic
chosen for easy recognition.
Akerlof, assumed that the car market, four kinds: new, used ones, the good
and the lemons. A new car, good or lemon may be used in the same situation
applies for automobiles. Individuals, well- buy a new car without knowing or
lemon. Akerlof, lemon thinks that the problem of similarity between the Gresham
Law. Accordingly, most new cars are lemon, bad ones of cars to be expelled from
the market means. But the lemon problem, a different level of knowledge about
the car with both buyers and sellers, while the Gresham Law, both the buyer and
the seller is able to distinguish between good money and bad money. Buyer and
seller aren’t same situation. Seller has more information than buyer. Because
who is the owner of good this person know own good how situation. If buyer
chooses wrong one it is adverse selection. Last one is moral hazard. It means
the two sides have different information in a certain relationship that refers
to or not to have the same information. This is a difficult element to the one
with the right information, inaccurate or insufficient information for the one
with the element of weakness. Inequality of knowledge, the adoption of
asymmetrical information, the assumptions about the behaviour of economic
agents, market acceptance of efficiency in resource allocation affects the
front of many an important conceptualization.
Lemon problem also occurs in the financial markets. Individuals with the
potential recipient of the stock, the expected profits with the company
expected a good profit with low risk for high and low unable to distinguish
between a company and a high risk. In this case, the receiver, and this will be
willing to pay an average price of a stock of quality. The price, poor quality,
the company's stock price and good quality of the company's stock price will
take place. If you have information of good quality and good company the
company's executives that they were more aware of the receiver if they are
unwilling to sell its shares in the average quality of a firm's stock price.
The companies that agreed to sell its shares at this price would be bad quality
companies. The receiver does not want to buy shares in companies for the bad
quality of the stock market will not work effectively.
Asymmetric information, such as other markets is an important problem that
can affect financial markets. Conditions of perfect competition, especially by
breaking the problem of asymmetric information in financial markets, securities
and adversely affect the functioning of credit markets. The presence of
asymmetric information problem in the securities markets, effectively prevent the
transfer of funds between savers and investors are. In this case, marketable
securities, forcing companies to be the primary source of financing and equity
financing by issuing, applying to companies that often is a method of funding.
Problem of asymmetric information, experience an increased risk of non-payment
to the cause of those who borrow on credit markets. To lenders, so this problem
does not want to give credit to the market despite safety projects and a case
of credit rationing occurs.
In the absence of information to be faced with the problem of lime
asymmetric. If the buyers, distinguish between good and bad firms, good stock
issued by companies, will purchase the full value of stocks and bonds. Thus,
financial markets, the funds can deliver the most productive investment
opportunities.
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