The Market for 'Lemons': Quality Uncertainty and the Market Mechanism
1970 · paper · Economics
Models how quality uncertainty affects markets, using used cars as the main example. Argues that when buyers judge quality by averages, sellers are encouraged to offer poor goods, lowering average quality and market size; discusses applications and counteracting institutions.
Checked: PDF from sfu.ca, fetched 5 Oct 2026. Page numbers are those of that PDF.
1 finding
Reference or label Equation (1), introduced as "the supply of cars offered by type one traders", is printed "S2=pN/2"; a few lines later the supply of type two traders is also printed "S2 =0". Equation (1) should be labelled S1.
- p. 5 Section II.B, equation (1)
S2=pN/2
- p. 5 Section II.B, line after the type two demand
S2 =0.
- p. 5 Section II.B, equation (1)
And the supply of cars offered by type one traders is
- p. 5 after demand of type two traders
S2 =0
Judge's note: Read the full image of PDF page 5. The subscript in equation (1) is clearly 2, and the line after the type two demand also reads S2 = 0. Demands are indexed D1 for type one and D2 for type two, and the text says group two has no cars, so S2 = 0 is the proper use and equation (1) carries the wrong subscript. Nothing on the page or elsewhere defines S2 as type one's supply. The formula itself is not affected, only the label.
Second check: another model agreed
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7 minor (typos and the like; most checked by the judge only)
Reference or label Footnote 7 cites Darling's book as "Punjabi Peasant in Prosperity and Debt" in both the text and the table source line; the book's title is reported to be "The Punjab Peasant in Prosperity and Debt".
- p. 12 Footnote 7 text
See his Punjabi Peasant in Prosperity and Debt
- p. 12 Footnote 7 table, source line
Source: Punjabi Peasant in Prosperity and Debt, 3rd ed.
Only the authors can say what is right here.
Judge's note: Rests on outside knowledge: that Sir Malcolm Darling's book (Oxford University Press) is titled "The Punjab Peasant in Prosperity and Debt". The full image of PDF page 12 shows "Punjabi Peasant in Prosperity and Debt" in both the footnote text and the source line, so the paper is internally consistent. The true title cannot be checked from the files.
Second check: another model agreed
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Wording Section III.C says without qualification that misrepresentation "costs 1/2 unit of utility per automobile; furthermore, it reduces the size of the used car market from N to 0", whereas Section II.C gives a gain of N/2 only "If N<Y2" and a gain of "Y2/2 units" if N>Y2.
- p. 10 Section III.C, top of page
costs 1/2 unit of
- p. 10 Section III.C, top of page
car market from N to 0
- p. 6 Section II.C, after equations (3)-(5)
in utility of Y2/2 units.)
Judge's note: Read PDF pages 6 and 10. Section II.C states the gain from symmetric information as N/2 for N < Y2, which is 1/2 per automobile with all N traded, and as Y2/2 for N > Y2, where type two traders' income is insufficient to buy all N automobiles. In the second case the loss per automobile owned is Y2/(2N), below 1/2, and fewer than N cars trade. Section III.C drops the condition. The statement is right for the N < Y2 case and can be read as 1/2 per automobile traded, so this is a loose summary and either form could be defended.
Second check: another model agreed
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Wording Footnote 5 table "Distribution of Industrial Control by Community": the 1911 entries (281, 15, 3, 5, —, 8, —, 28) add to 340, but the printed total is "341"; the 1931 and 1951 columns add to their printed totals of 510 and 619.
- p. 11 Footnote 5 table, 'Distribution of Industrial Control by Community', 1911 column
341
- p. 11 Footnote 5 table, 'Distribution of Industrial Control by Community', 1911 column
Total 341
- p. 11 footnote 5, Distribution of Industrial Control by Community, 1911 column
Total 341 510 619
Only the authors can say what is right here.
Judge's note: Read the table on the full image of PDF page 11. The 1911 column is British 281, Parsis 15, Gujratis 3, Jews 5, Muslims dash, Bengalis 8, Marwaris dash, Mixed control 28, Total 341. The listed entries sum to 340. The 1931 and 1951 columns sum exactly, so the total row is a plain sum. No footnote or text explains the dashes or the difference. The gap of one may come from the source (Mehta 1955), or a dash may stand for a single firm, so only the source can say which figure is off. Rated minor because it is an off-by-one in a footnote table that does not bear on the argument.
Second check: another model agreed
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Wording The text speaks of a middleman arbitraging "between the rates of the moneylender and the central bank", but the rates compared just before are those of "the large banks in the central cities" (6, 8, and 10 per cent), not a central bank.
- p. 13 Section III.D(2), first paragraph on page
of the moneylender and the central bank
- p. 12 Section III.D(2)
banks in the central cities have prime interest rates of 6, 8, and
Judge's note: Read PDF pages 12 and 13. Page 12 sets up the gap between "the large banks in the central cities" with prime rates of 6, 8, and 10 per cent and the local moneylender at 15, 25, and even 50 per cent. Page 13 then says "the central bank". No central bank rate is given anywhere in the paper. This is most likely shorthand for a bank in the central city and the meaning is recoverable, so it is a minor wording point.
Second check: another model agreed
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Typo Missing article in "it would clearly be advantageous to trade a lemon at the price of new car, and buy another new car"; should read "the price of a new car".
- p. 3 Section II.A, third paragraph
the price of new car, and buy another new car
Judge's note: Read the crop of PDF page 3. The line is printed "the price of new car, and buy another new car" with no article before "new car". It is in the print, not an extraction dropout.
Second check: none (judge only)
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Typo Footnote 1 gives the title of Arrow's article as "Uncertainty and Medical Care" (American Economic Review, Vol. 53, 1963); the published title is reported to be "Uncertainty and the Welfare Economics of Medical Care".
- p. 7 Footnote 1
Arrow's fine article, "Uncertainty and Medical Care" (American Economic Review, Vol. 53, 1963)
Only the authors can say what is right here.
Judge's note: Rests on outside knowledge: that Arrow's 1963 American Economic Review article is titled "Uncertainty and the Welfare Economics of Medical Care". The crop of PDF page 7 shows the footnote as quoted, with the short title in quotation marks. The full title cannot be checked from the files, and the footnote may be using a deliberate short title in running prose, so this is a minor query.
Second check: none (judge only)
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Typo Footnote 9 on PDF page 10 prints "ed. S. Kuznets, et. al. (Durham, N. C.: Duke University Press, 1955)" with a period after "et"; footnote 9 on PDF page 13 prints "G. Foster et al.".
- p. 10 Footnote 9
et. al. (Durham, N. C.: Duke University Press, 1955)
- p. 13 Footnote 9 (p. 499)
G. Foster et al.
- p. 10 Footnote 9
et. al. (Durham, N. C.: Duke University Press, 1955).
- p. 13 Footnote 9
G. Foster et al. (Boston: Little Brown and Company, 1967)
Judge's note: Read both crops. On PDF page 10 the italic "et. al." has a period after "et". On PDF page 13 the same abbreviation is printed "et al." without it. The stray period is in the print and the usage is inconsistent within the paper.
Second check: none (judge only)