Construction – Forever the Market for Lemons?
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.
The lemons are still with us
Construction is full of situations where one party knows materially more than the other — and the systems that connect them do little to close the gap.
Ask a bidder to honestly review a cost plan they’re competing on, and you’ve created a game where candour is penalised and strategic discretion rewarded. Ask a consultant to compare the carbon credentials of two contractors, and the reported data varies so wildly it tells you more about methodology than performance. Ask whether social value commitments are genuine, and you’ll find an industry that talks fluently about community benefit whilst a portion of the workforce earns below a living wage.
These aren’t aberrations. They’re the predictable consequences of a market where quality is hard to see, easy to claim, and rarely verified.
Making quality visible
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. Not by adding complexity but through better questions, sharper evaluation, and systems where honesty is the rational move, not a commercial risk.
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’.
