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# The Market for "Lemons": Quality Uncertainty and the Market Mechanism

## Details

**Authors** Akerlof, George A.

**Year** 1970

**Publisher** The Quarterly Journal of Economics

**Kind of work** article

**Discipline** Economics

**Applied** false

[Read it at the publisher](https://doi.org/10.2307/1879431) 
10.2307/1879431

## In authors' words

### What they set out to do (purpose)

To show how uncertainty about the quality of goods affects market outcomes, taking the used-car market as the central example.

### How they did it (methods)

A formal model with a numerical example: sellers' car quality is uniformly distributed between 0 and 2, and buyers value quality at 1.5 times the sellers' valuation. The model is applied to insurance, the employment of minorities and credit markets in developing countries.

### What they found (results)

When sellers know the quality of their goods and buyers know only its distribution, buyers will pay only for average quality, and owners of good cars withdraw. In the numerical example, average quality offered at price p is p/2, buyers will pay at most 1.5 times that, and no trade occurs at any price although gains from trade exist. With symmetric information trade does occur. Akerlof concludes that bad goods drive out good, that average quality and market size fall, and that in extreme cases the market disappears. He applies the argument to insurance, where older buyers face a deteriorating risk pool, to employment, where group membership serves as a weak signal of skill, and to local moneylending.

## Commentary

### In short

The result follows from two parties who hold different information about the same good, so that each sees a different quality profile. Buyers' pricing responds to sellers' exits, and the exits respond to the price, a loop between the two groups. The model also depends on a distinction between good cars and lemons that buyers cannot draw at the point of sale.

**Patterns it shows** D, R, P

Formal proof or model

**Added** 2026-10-11

**How to cite this** Akerlof, George A. (1970). The Market for "Lemons": Quality Uncertainty and the Market Mechanism. The Quarterly Journal of Economics.