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.

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’.

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What’s with this Lemon?

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Jamie Hillier

Partner
Contact
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jamie.hillier@akerlof.co.uk
07791 718 377

With a penchant for tweed and jackets with leather arm patches, Jamie began his career as a quantity surveyor, before climbing the ladder to lead major projects for a Tier 1 contractor.

Eventually expanding his book collection beyond copies of SMM7, Jamie has interest in a broad range of subjects linked to delivering better outcomes for society and the environment.

His strategic insights on MMC and behavioural science have made their way into numerous government, industry and academic publications, including the Construction Playbook, Transforming Infrastructure Performance Roadmap to 2030, the Platform Rulebook and the RIBA DfMA Overlay.

John Handscomb

Partner
Contact
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john.handscomb@akerlof.co.uk
07305 486 581

Construction is in John’s blood. Learning from his father who was a planner and project manager, John began his career by working on some iconic projects in both the public and private sector.

As a procurement expert and integrator of new ways of working, John has pioneered the integration of platform principles, DfMA processes and supply chain within over £5bn projects in the last 15 years, for some of the largest building programmes in the UK. Despite his considerable expertise, John keeps it simple, communicating complicated ideas with ease and helping to equip the industry with new knowledge and skills.

Outside of Akerlof, John enjoys his executive role with technology start-up ScanTech Digital, spending time with his family, taking trips down the football, playing a bit of golf with friends and the odd pint. 

Our name is shared with George Akerlof, a Nobel Prize-winning economist.

His seminal paper, Market for Lemons, demonstrated the devastating consequences of making decisions under the conditions of quality uncertainty and unequal information between buyers and sellers, increasing the chance of buyers ending up with a ‘lemon’.

This 50-year-old concept continues to retain parallels within the construction industry.

Through our insight and experience, we can rebalance this information asymmetry on behalf of our clients, levelling the playing field to deliver better outcomes.