Market Failure in Light of Non-Expected Utility

24 Pages Posted: 18 Nov 2009

See all articles by Eyal Baharad

Eyal Baharad

University of Haifa - Department of Economics; Bar-Ilan University - Department of Economics

Doron Kliger

University of Haifa

Date Written: October 25, 2009

Abstract

This paper merges the non-expected utility approach (Tversky and Kahneman (1992) and Quiggin (1982)) into Akerlof's (1970) model of "Market for lemons". Our main finding suggests that when the proportion of traded "lemons" is high (low), the problem of market failure is mitigated (enhanced). We derive the results for different probability weighting functions and analyze the phenomenon of market failure in light of non-expected utility maximization.

Suggested Citation

Baharad, Eyal and Kliger, Doron, Market Failure in Light of Non-Expected Utility (October 25, 2009). Available at SSRN: https://ssrn.com/abstract=1507697 or http://dx.doi.org/10.2139/ssrn.1507697

Eyal Baharad

University of Haifa - Department of Economics ( email )

Mount Caramel
Haifa 31905
Israel
972 4 824 9585 (Phone)
972 4 824 0059 (Fax)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel

Doron Kliger (Contact Author)

University of Haifa ( email )

Haifa 31905
Israel
(972)4-8249587 (Phone)
(972)4-8240059 (Fax)

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