I turned my focus, instead, to the effects of asymmetric information in the automobile market. My interest in economics had always been in macroeconomics. I believed then, as I still believe today, that unemployment, with the financial hardship and the loss of identity that it entails, is a very major problem. This led me to consider the causes of the business cycle. At the time a very major factor in the business cycle was the fluctuation in sales of new cars, leading naturally to the question: why was there so much variation in new car purchases? In order to tackle this problem, I had to see why people purchased new cars, rather than rented cars, or purchased used cars. There, asymmetric information seemed to play a key role. I knew that a major reason as to why people preferred to purchase new cars rather than used cars was their suspicion of the motives of the sellers of used cars. As mentioned earlier, this insight, of course, had been central to the horse trading profession for centuries, but I did not know that at the time either.
Writing the "The Market for 'Lemons'": A Personal Interpretive Essay
The Market for Lemons: Quality Uncertainty and the Market Mechanism