William K. Black — What If George Akerlof Had Written About Lethal 'Lemons'?

If you have studied economics at the university level in the last 35 years, it is likely you were introduced to the concept of "asymmetrical information" and George Akerlof's famous 1970 article on markets for "lemons" (American slang for an automobile of terrible quality). The Nobel committee that awards the prize in economics singled out that article for special praise in deciding to make him a Nobel Laureate in 2001. The article discusses the implications of asymmetrical information in a number of contexts, but at least two of the contexts involved what criminologists call "control fraud" and a third involves the risk of fraud by borrowers.

Most of the examples Akerlof discussed involved fraud. The frauds he analyzes concern deceit about the quality of goods being sold or the borrowers' ability or willingness to repay a loan.
I have noted in many articles that the clan of economists has a primitive tribal taboo against saying the mystic "f" word out loud or even putting it in print, so Akerlof's article does not contain the word "fraud." His language, however, makes it clear that he is discussing fraud and how it can create what we now call a "Gresham's dynamic" in which bad ethics drives good ethics out of the market.

The theme of my article is to alert the reader to other variants of anti-purchaser control fraud in which the deception about the quality of the goods sold (or rented) affects safety, not simply the appropriate price of the bad quality goods. I use as my example the recent deaths of nearly 400, and over 1,000 injured, Bangladeshis when the building they were working in collapsed. I show that the same case is also an example of anti-employee control fraud.

The nature of the survivors' injuries is often horrific.

The Huffington Post
What If George Akerlof Had Written About Lethal 'Lemons'?
William K. Black | Assoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle