Could Private Universities Face an Adverse Selection Problem?
George Akerlof’s ultra-famous paper “The Market for Lemons: Quality Uncertainty and the Market Mechanism” introduced adverse selection as a consequence of information asymmetry. Akerlof noticed that in markets where sellers have more information than buyers, the average value of the good tends to go down, even for those of high quality, which causes sellers of high quality goods to exit the market eventually leading to a market collapse. Buyers are weary that unscrupulous sellers may be looking to rip them off so they avoid buying higher quality goods, “peaches,” and instead only buy ones of lower quality “lemons.” Since they Continue reading Could Private Universities Face an Adverse Selection Problem?