Work

Robust predictions and hard information in the market for lemons

Year: 2025

Type: article

Abstract: The literature on informationally robust predictions has focused mostly on soft information. In a stylized adverse selection model, we show that hard information enables trade, even when the unique equilibrium outcome without it is no-trade. • We study a stylized adverse selection model à la Akerlof. • The seller obtains either soft or hard information about quality. • With soft information, no-trade is the unique equilibrium outcome. • However, with hard information, trade can occur in equilibrium. • Thus, hard information is crucial for informationally robust predictions.

Source: Economics Letters

DOI: 10.1016/j.econlet.2025.112568

Authors: Yusuke Yamaguchi, Takuro Yamashita

Institution: The University of Osaka

Language: English

Topic: Economic theories and models

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,030