How Many Lemon Colleagues Do You Have?

Recently, I did one thing, which is theoretically unwise: I bought a used car.

Because economists do not like compromise between safety and vehicle styles, I bought Volvo (Volvo).

You may think that I should be wiser.

The title of my book's American version is: "why can't you ever buy a decent second-hand car"?

George, assistant professor of economics, 1966.

Akedof (George Akerlof) tried to explain the reason in a paper entitled "The Market for Lemons" in the United States.

His basic insight is simple: if someone is rich in driving experience for a car, but rushing to sell it to you, why are you so eager to buy it?

Akedof showed us that this insight can produce some dramatic results.

Buyers have a totally sensible vigilance against being cheated, and in principle, they may put the whole old car market to death: a rational seller can not make a price that is low enough to clinch a deal.

The more discount, buyers will believe that this car is a terrible lemon.

The more likely result is that only those low price, troubled cars can survive.

A person who owns a good car will insist on owning the car because he can not prove that the car is good, so he does not expect anyone to make an attractive purchase price.

If a good car is not for sale, the rest is lemon.

This is not only a problem for buyers, but also a problem for sellers who want to be trusted.

Whether this is a reasonable description of the old car market, economists have different opinions.

For example, they have heated debate about whether a second-hand pickup costs more maintenance than a pickup truck with the same age and sale.

If this is the case, Akedof's lemon model can be proved.

But this is actually not the key, because the old car market is just the starting point of Akedof's research.

Two top academic journals refused to publish this short and brilliant paper because they could not see the trivial details of the examples.

He recalls that the third Journal of Political Economy gave him a better reason to reject him: the proposition of this thesis can not be established, because if it is established, the theory of economics will be subverted.

The Journal of political economy is half right.

Akedof did reverse the economics and eventually won the Nobel prize, but it was not because he proved the pain of the old car dealers, but because he showed us how little "insider information" would destroy all kinds of markets.

The insurance market, including medical insurance, may be harmed.

The loan and mortgage market is like this: some people just can't get loans, no matter how much interest they are willing to pay.

So is the job market.

How many of your colleagues are "Lemons"?

If you are capable, but unable to prove your abilities to your boss, you may be more willing to be a freelancer.

If other competent employees think so, that may explain why you think your colleague is an idiot and they look at you too.

These problems can be solved, but they need to be paid.

In order to eliminate high-risk customers, mortgage companies refuse to lend money to the whole area in some places.

Employees will spend years trying to prove that they are smart and dedicated.

Old car buyers will look for trustworthy sellers, even if they do increase paction costs.

My Volvo was bought from my brother-in-law, because I think that would reduce the risk of buying lemons.

These solutions are not only costly but also not always useful.

When my Volvo took less than two weeks, the clutch was broken: it was a bitter little "lemon" after all.