Akerlof’s “the Market for Lemons” article analysis

Description In week#7’s lecture, we discussed about Akerlof’s “the Market for Lemons” article. One episode around the article, which became one of the most influential article in economics, is that it was rejected by several journals in Economics before it was finally accepted for publication. The one of the reviewers who rejected the article wrote that markets do exist, therefore the article must be making the wrong prediction. Now, the purpose of this discussion question is not to make fun of the unnamed reviewer (this article eventually won the Nobel Prize), but rather, think sociologically about this reviewer’s comment. The reviewer is right that there exist many markets which have the characteristic of asymmetrical information. However, as sociologists, we would say that the fact that markets exist does not mean the model of “Market for Lemons” is wrong; but rather, these markets can exist despite of asymmetrical information because there are some institutions/mechanisms/systems which prevent the downsides of asymmetrical information from destroying the market. Of such a mechanism existed for Atari video games, the market for Atari video games might not have collapsed. Trust and commitment we discussed this week is an obvious example of such mechanisms, but is not the only one. For this question, think of a market (of something) with asymmetrical information. Describe the market, and explain why there is asymmetrical information. You cannot use the specific markets which I used as examples – this include rubber, used cars, auto repair, Atari video games. Describe one mechanism/system/institution (these terms have different meanings, though you can use them mostly interchangeably for the purpose of this question) which you think is helping to reduce the risk created by asymmetrical information. Explain how it works to reduce the risk. For this answer, you cannot use trust and commitment as your choice of mechanism. Finally, describe what you would like to do if you were to study the mechanism/institution/system of your choice.