Construction – Forever the Market for Lemons?
- January 8, 2020
AT AKERLOF we look to provide a platform for considered choice and business improvement – to ensure our customers are enabled to define, evaluate and procure quality through informed decision making.
The experience of the founding partners, spanning project, programme and strategic delivery, affords our clients with surety in adopting Modern Methods of Construction (MMC) to meet their strategic needs.
Our name is shared with George Akerlof, a Nobel Prize winning economist. His seminal paper, Market for Lemons, demonstrated the devastating consequences of adverse selection under conditions of quality uncertainty and unequal (asymmetric) information, a concept that continues to reflect the UK built environment today.
His example was not fruit nor construction but used cars – a ‘lemon’ being one with hidden defects. Buyers want quality cars or ‘peaches’ however to account for the risk the car is a lemon, buyers cut their offers. That puts off peach-sellers, some of who exit the market, raising the likelihood of buyers getting a lemon, pushing prices down further.
It becomes impossible to sell quality (a peach) for what is should be worth and therein lies the tragedy: there are buyers who would happily pay the asking-price for a peach, if only they could be sure of the car’s quality. This “information asymmetry” between buyers and sellers kills the market.
Despite being published 50 years ago, the parallels of adverse selection remain stark in our industry.
At Akerlof, with knowledge of the market and an understanding of processes, products and people we are able to address imbalance and asymmetry of information on behalf of our clients. Our insight, experience and understanding enables our clients to move beyond the status quo and unlock a more sustainable construction market than the current ‘Market for Lemons’.
