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From: radford@calgary.UUCP (Radford Neal)
Newsgroups: net.politics,net.politics.theory
Subject: Re: The free market (and lemons)
Message-ID: <589@calgary.UUCP>
Date: Fri, 29-Nov-85 18:07:38 EST
Article-I.D.: calgary.589
Posted: Fri Nov 29 18:07:38 1985
Date-Received: Sat, 30-Nov-85 08:08:42 EST
References: <259@gargoyle.UUCP>
Organization: University of Calgary, Calgary, Alberta
Lines: 51

> In response to the postings concerning the "market for lemons" model,
> Radford Neal writes:
> 
> >The postings on this subject seem to me to be singularly unenlightening.
> 
> This posting is guaranteed to be a source of enlightenment, or your
> money will be cheerfully refunded.
> 
> >  1) Limited information is an essential characteristic of the real world.
> >     Saying the free market is flawed because not everyone knows everything
> >     is silly.
> 
> But it is not silly to point out that, because of unequally
> distributed information, government intervention can outperform the
> free market in some situations.  I'll try to explain how this
> happens.

As the following quote admits, you don't in fact explain how government
intervention is necessary:

> First, I will let George Akerlof explain the point (from his article
> in *Quarterly J Econ* 84(3), 1970):  
> 
>   There are many markets in which buyers use some market statistic to
>   judge the quality of prospective purchases.  In this case there is
>   incentive for sellers to market poor quality merchandise, since the
>   returns for good quality accrue mainly to the entire group whose
>   statistic is affected rather than to the individual seller
>   [multi-person Prisoner's Dilemma -- RC].  As a result there tends to
>   be a reduction in the average quality of goods and also in the size
>   of the market.  It should also be perceived that in these markets
>   social and private returns differ, and therefore, in some cases,
>   governmental intervention may increase the welfare of all parties.

NOTE THE FOLLOWING:

>   Or private institutions [guarantees, brand-name goods, chains] may
>   arise to take advantage of the potential increases in welfare which
>   can accrue to all parties.  By nature, however, these institutions
>   are nonatomistic, and therefore concentrations of power -- with ill
>   consequences of their own -- can develop.

So your own authority says that the market can provide these benefits
also, but that this would be bad for other reasons. What he means by
"nonatomistic" and why he thinks any concentrations of "power" which
the market would develop are worse than concentrations in governments
is unclear from this quote, so I won't attempt a refutation at this time.

> Richard Carnes, ihnp4!gargoyle!carnes

      Radford Neal