The Market For "Lemons" And Incomplete Adverse Selection

This article, on the basis of Akerlof's adverse selection theory, put forward an idea of incomplete adverse selection, and constructs a model that can reach a non-zero equilibrium of the market within in finite times of trades. It can be designed to explain a current social phenomenon of persistence of counterfeits in china.A counterfeit market, as is showed in the model, can naturally decline to a certain extent due to the adverse selection mechanism, but it can not completely vanish because of some elements such as enterprise's costs of withdrawal from the market, stable consumer demands for inferior merchandise under certain circumstance and some outside interference policies and regulations, which are not fully considered in traditional theory of adverse selection. Price mechanism, under the condition of imperfect information, does not work well and the buyers and sellers are shortage of mutual benefits drives, which is the motive of scalable existence of counterfeits. Market failure needs outside inferences, which leaves rooms for governmental administration, but huge costs of surveillance illustrates that the arrangement of governmental surveillance is not the best choice.The North paradox often leads to governmental failure, and this paper, from the angle of transaction fees, probes into the function of the NGO and demonstrates that professional associations can be an alternative for the governmental surveillance.