The market economy is the economic system that various economic agents make decisions based on information like price or quality. In this time, Asymmetry of information between these agents is very important. When a specific agent has more information than others, we call it Information Asymmetry. It is known that information asymmetry makes less trade and the market inefficient. Lemon Market by Akerlof(1970) was the first study about the model on market failure caused by information asymmetry. But, if we release some assumptions of Lemon Market model, We get different results.
We had predicted some unique results occur when we introduce heterogeneity, bounded rationality and dynamics to the agents in the Lemon Market. But There was no methodology for such study.
In this study, I analyzed the behavior of heterogeneous and bounded-rational agents in the Lemon Market using Agent-based Modeling and Repast. In this model, economic agents are modeled as object and Lemon Market is dynamic market where agents update his information about quality using adaptive expectations in each period. And I extended this model into the case that there are some experts on information about quality and compared these two cases.
As a result, if there are no experts and initial hiqh quality ratio is above a certain threshold, there was no market failure and social welfare decreased within some proportion of high quality. When some experts exist, possibility of market failure decreases than before and social welfare increases.
In the future, Agent-based modeling can be applied to model the complex dynamic system like the stock market, transportations, telecommunications industries, etc.
