ASYMMETRIC INFORMATION

December 2018, Paper-II
Question
Who among the following has been awarded the Nobel Prize in Economics “for analysis of markets with asymmetric information”?
a) Robert A Mundell
b) George Akerlof
c) Richard Thaler
d) Paul Krugman
Answer B

The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena that mainstream general equilibrium economics couldn’t explain. In simple terms, the theory proposes that an imbalance of information between buyers and sellers can lead to inefficient outcomes in certain markets. Three economists were particularly influential in developing and writing about the theory of asymmetric information: George Akerlof, Michael Spence, and Joseph Stiglitz. All three shared the Nobel Prize in economics in 2001 for their earlier contributions.
Akerlof first argued about information asymmetry in a 1970 paper entitled “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” Therein, Akerlof stated that car buyers see different information than sellers, giving sellers an incentive to sell goods of less than average market quality.