DEFINITION of George A. Akerlof
George A. Akerlof is the winner of the 2001 Nobel Prize in Economics, along with Michael Spence and Joseph Stiglitz, for his theory of information asymmetry as described in his famous 1970 paper, "The Market for Lemons: Quality Uncertainty and the Market Mechanism," which discusses imperfect information in the market for used cars. He is also well known for his efficiency wage hypothesis, which suggests that wages are determined by the efficiency goals of employers in addition to supply and demand forces.
BREAKING DOWN George A. Akerlof
Born in Connecticut in 1940, Akerlof spent his early years in the Pittsburgh area, then Princeton, NJ, following his father's career steps in chemical engineering. After private schooling Akerlof enrolled at Yale. "Regarding college, I had no choice," explained Akerlof in his autobiographical write-up for the Nobel Prize website, because his parents met there and his brother also attended the university. After earning his B.A. from Yale, Akerlof obtained his PhD from MIT. Dr. Akerlof has spent most of his career at the University of California at Berkeley as an economics professor. As of 2018 he is still on the faculty at Berkeley; he also teaches at the McCourt School of Public Policy at Georgetown University. Another interesting fact: he is married to former Fed Chair Janet Yellen, whom he met at the Federal Reserve Board where he was working for a year between a stint at Berkeley and the London School of Economics.
Akerlof's Contribution That Earned Him the Nobel Prize
Akerlof shared the 2001 prize with fellow MIT greats Spence and Stiglitz for, according to the Nobel Prize committee, "study[ing] markets where sellers of products have more information than buyers about product quality. He showed that low-quality products may squeeze out high-quality products in such markets, and that prices of high-quality products may suffer as a result." This theory, to the average person, may be more understandable than an abstract economic theory because it can be observed in real life. In a market of goods, consumers can see differences in quality of goods and the prices attached to these goods. Akerlof's groundbreaking paper advanced the theory that low prices of goods in a market have the effect of driving away suppliers of high-quality goods, leaving only "lemons" for consumers.