George A. Akerlof

My paper in 1970 entitled "The Market for 'Lemons" described the role of asymmetric information in market-destroying vicious circles. For example, in used car markets potential sellers of used cars, with superior information, withhold good cars from the market; buyers react by reducing their willingness to pay; and in turn sellers further reduce the quality of cars put up for sale. I have also worked on the application of sociology and psychology to the workings of the macroeconomy. I have used it observations from these two fields especially to explain the nature of unemployment and the business cycle, where a small amount of money illusion will make monetary policy effective. I am currently working with Rachel Kranton on the role of identity in economic transactions. Worker identification with organizations reduces the need for monetary incentives as a control device.