SummaryDuring the second half of the 20th century, Keynesians were busy countering the neo-classicists and monetarists who were intruding onto their sacred ground: macroeconomics and the Phillips curve. New Keynesian Economics would keep on exploring market failure one breakdown at a time.
George Arthur Akerlof, born in 1940, is an American economist and professor at University of California, Berkeley. He was awarded the Nobel Prize in Economic Sciences in 2001 along with Michael Spence and Joseph E. Stiglitz.
He is best known for his contributions to asymmetric information theories: study of transactions in which one of the parties has better information than the other one. Adverse selection and moral hazard can result from the worst cases of asymmetric information in transactions between economic agents.
Akerlof’s key article on this subject is “The Market for Lemons: Quality Uncertainty and the Market Mechanism”, 1970, in which he develops a classical example of second hand car market in which the seller is the only one that truly has complete information about the quality of the car, to simply explain the risk of asymmetric information.