Information Asymmetry

choi

Information asymmetry | Secrets and Agents. George Akerlof's 1970 paper, 'The Market for Lemons,' is a foundation stone of information economics. The first in our series on seminal economic ideas. Economist, July 23, 2016.
http://www.economist.com/news/ec ... n-stone-information

Note:
(a) "IN 2007 the state of Washington introduced a new rule aimed at making the labour market fairer: firms were banned from checking job applicants' credit scores. * * * Since then, ten other states have followed suit. But when Robert Clifford and Daniel Shoag, two economists, recently studied the bans, they found that the laws left blacks and the young with fewer jobs, not more. * * * Messrs Clifford and Shoag found that when firms could no longer access credit scores, they put more weight on other signals, like education and experience. Because these are rarer among disadvantaged groups, it became harder, not easier, for them to convince employers of their worth.  Signalling explains all kinds of behaviour."

Robert Clifford and Daniel Shoag, 'No More Credit Score': Employer Credit Check Bans and Signal Substitution. Social Science Research Network, Feb 15, 2016 (HKS Working Paper No. RWP16-008)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2746642
(i) Social Science Research Network
https://en.wikipedia.org/wiki/Social_Science_Research_Network
(SSRN)
(ii) HKS stands for Harvard Kennedy School, employer of Shoag, the corresponding author.

(b) "in the late 1960s, George Akerlof wrote 'The Market for Lemons' * * * and later won its author a Nobel prize * * * Mr Akerlof's idea, eventually published in the Quarterly Journal of Economics in 1970, was at once simple and revolutionary."
(i) George Akerlof
https://en.wikipedia.org/wiki/George_Akerlof
(1940- )
(ii) George A Akerlof, The Market for Lemons: Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84: 488-500 (1970).
https://www.jstor.org/stable/1879431?seq=1#page_scan_tab_contents

(c) " 'peaches' * * * 'lemon' * * * 'information asymmetry' * * * Is it really true that you can win a Nobel prize just for observing that some people in markets know more than others? That was the question one journalist asked of Michael Spence, who, along with Mr Akerlof and Joseph Stiglitz, was a joint recipient of the 2001 Nobel award for their work on information asymmetry. His [journalist's] incredulity was understandable.
(i) lemon
Online Etymology Dictionary
www.etymonline.com/index.php?term=lemon
(ii) My Web search suggests Akerlof coined the term "peach" -- nobody else talks about cars as peaches but him.
(iii) Another way to look at Akerlof's findings is

Lemons Problem. Investopedia, undated
www.investopedia.com/terms/l/lemons-problem.asp

choi

(d) "Mr Spence’s flagship contribution was a 1973 paper called 'Job Market Signalling' that looked at the labour market. Employers may struggle to tell which job candidates are best. Mr Spence showed that top workers might signal their talents to firms by collecting gongs, like college degrees."
(i) Michael Spence
https://en.wikipedia.org/wiki/Michael_Spence
(1943- ; "For the model to work, it is not even necessary for education to have any intrinsic value if it can convey information about the sender (employee) to the recipient (employer) and if the signal is costly")

Costly?  It reminds me of peacock's tail as interpreted by Charles Darwin.

Ewen Callaway, Size Doesn't Always Matter for Peacocks. Nature, _ : _ (2011)
www.nature.com/news/2011/110418/full/news.2011.245.html

* train (n): "a long piece of material attached to the back of a formal dress or robe that trails along the ground"
www.oxforddictionaries.com/us/definition/american_english/train
(ii) Michael Spence, Job Market Signalling. Quarterly Journal of Economics, 87: 355-374 (1973).
http://qje.oxfordjournals.org/content/87/3/355.abstract
(iii) gong (n): "British : MEDAL"
http://www.merriam-webster.com/dictionary/gong

(e) "In a 1976 paper Mr Stiglitz and Michael Rothschild, another economist, showed how insurers might 'screen' their customers. The essence of screening is to offer deals which would only ever attract one type of punter. * * * Risky drivers will balk at the deductible, knowing that there is a good chance they will end up paying it when they claim. They will fork out for expensive coverage instead. * * * That means [airlines] deliberately making the standard cabin uncomfortable, to ensure that the only people who slum it are those with slimmer wallets."
(i) Joseph Stiglitz
https://en.wikipedia.org/wiki/Joseph_Stiglitz
(1943- )
(ii) Joseph Stiglitz and Michael Rothschild, Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information. Quarterly Journal of Economics, 90: 629-649 (1976).
http://qje.oxfordjournals.org/content/90/4/629.short
(iii) punter (n): "chiefly British : customer, patron"
www.merriam-webster.com/dictionary/punter
(iv) fork (v): "PAY, CONTRIBUTE—used with over, out, or up <had to fork over $5000>"
www.merriam-webster.com/dictionary/fork
(v) slum (vi) "informal (slum it) put up with conditions that are less comfortable or of a lower quality than one is used to"
www.oxforddictionaries.com/definition/english/slum

(f) "Economists first cottoned on to this phenomenon of 'moral hazard' when Kenneth Arrow wrote about it in 1963. * * * It is when information is asymmetric and you cannot observe what they are doing (is your tradesman using cheap parts? Is your employee slacking?) that you must worry about ensuring that interests are aligned.
(i) cotton on to. The Phrase Finder, undated.
http://www.phrases.org.uk/meanings/cotton-on.html
(ii) Kenneth Arrow
https://en.wikipedia.org/wiki/Kenneth_Arrow
(1921- )
(iii)  Kenneth J Arrow, Uncertainty and the Welfare Economics of Medical Care. American Economic Review, 53: 941-973 (1963).
https://assets.aeaweb.org/assets ... 20/53.5.941-973.pdf
(iv) tradesman (n): "a worker in a skilled trade : CRAFTSMAN"
www.merriam-webster.com/dictionary/tradesman
(v) moral hazard
https://en.wikipedia.org/wiki/Moral_hazard
(section 2 History of the term)