Adverse Selection and the Middleman.

The question analyzed in this paper is whether a market that otherwise experiences an Akerlofian "lemons impasse" can function if a middleman organizes trade. It is found that the middleman's intervention can prove successful even if neither signals nor quality screening methods exist that could help him to assess the good's qualities. The result is obtained under the hypothesis that the middleman randomizes his price offers to the sellers of the units to be intermediated. Copyright 1989 by The London School of Economics and Political Science.