Where the seller knows more than the buyer, the burden of inspection falls on the buyer unless institutions shift it.
The default rule of English commerce for centuries, and the pre-modern statement of what Akerlof formalised in 1970. Consumer protection law is the record of institutions deciding to shift the burden.
In practice
- A buyer of a leasehold flat who does not read the service charge history discovers a £30,000 roof bill that was in the papers all along.
- An employer hiring on a glowing reference from a friend of the candidate learns what the reference did not say.
- Standing
- The pre-modern statement of the problem Akerlof formalised in 1970.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- Rules for choosing, and the paradoxes that humbled the theory