Asymmetric solutions to asymmetric information problems

This paper studies markets plagued with asymmetric information on the quality of traded goods. In Akerlof's setting, sellers are better informed than buyers. contrast, we examine cases where buyers sellers. creates an inverse adverse selection problem: market tends to disappear from bottom rather top. contrast traditional model, it is high-value goods (gems) that market, low-value (lemons). We refer this scenario as “market for gems.” investigate consequences undisclosed knowledge hidden qualities — which and reasons why legal theorists have given form substantially less consideration. Conventional contractual solutions lemons problem often ineffective in gems case: uninformed buyer a experiences good he purchased; gems, instead, seller may never know sold. study three alternative auctions, suppression information, warranties identify condition under each them feasible. then show how theory sheds light real-life problems arising multi-million dollar transactions involving soccer players, artworks, M&As, Hollywood movies, diamonds.