Uneven Information Causes Market Failure? Market-Failure
Arguments Ignore Incentives for Market Participants to Overcome
Assymetric Information DECEMBER 01, 2007 by JOSHUA C. HALL In a
famous 1970 paper, economics Nobel Laureate George Akerlof used
the market for used cars to show how differences in information
between buyers and sellers (“asymmetric information”) could lead
a market to shrink or collapse entirely. A large variety of
markets have been said to fail because of asymmetric
information, from all different types of insurance markets to
the market for translators. In many cases these market-failure
arguments have been used as a justification for government
intervention. The problem with many, if not all, of these
arguments, however, is that they fail to appreciate the
incentives market participants have to find ways to overcome the
information differences. A good example of this tendency to see
market failures everywhere is Phil Birnbaum’s article, “Are
Traded Players Lemons,” in the 2005 issue of T