George Akerlof 101: The Genius of Asymmetric Markets
Zatrun Published at February 27, 2023

George Akerlof is an American economist born on June 17, 1940, who is best known for his research on markets with asymmetric information. Akerlof is a university professor at the McCourt School of Public Policy at Georgetown University and also serves as the Koshland Visiting Professor of Economics at the University of California, Berkeley.

He was awarded the Nobel Memorial Prize in Economic Sciences in 2001, along with Michael Spence and Joseph Stiglitz, for their analyses of markets with asymmetric information. In this article by, you can find everything you need to know about George Akerlof.

Who is George Akerlof?

George Akerlof was born to a Jewish family in New Haven, Connecticut. His mother, Rosalie Clara Grubber (nee Hirschfelder), and father, Gösta Carl Åkerlöf, were of German-Jewish and Swedish descent, respectively. He attended Princeton Day School and Lawrenceville School before earning a bachelor’s degree in economics from Yale University and a Ph.D. in economics from the Massachusetts Institute of Technology (MIT). He grew up with an older brother, Carl, who is a physics professor.

After completing his education, Akerlof began his academic career as an assistant professor at the University of California, Berkeley. He spent time as a visiting professor at the Indian Statistical Institute (ISI) in India before returning to the US in 1968. He became a tenured professor at Berkeley and served as a senior economist on the Council of Economic Advisers (CEA) in the White House. Later, he moved to the London School of Economics, where he served as the Cassel Professor of Money and Banking.

Akerlof returned to Berkeley as the Goldman Professor of Economics and taught there. He was appointed as the Chairman of the CEA in 1997 and started working at the Brookings Institution in Washington, D.C. He returned to UC Berkeley in 1999 and remained an active faculty member until his retirement. He was awarded the Koshland Visiting Professor of Economics at UC Berkeley in 2010.

After receiving approval from the Federal Reserve Board, Akerlof moved to Washington, D.C., where his wife, Janet Yellen, served as the Chair of the Federal Reserve. Akerlof became a visiting scholar at the International Monetary Fund (IMF) and a university professor at the McCourt School of Public Policy at Georgetown University.

His Major Contributions to Economics

George Akerlof is best known for his article “The Market for Lemons: Quality Uncertainty and the Market Mechanism,” which identifies the problems of markets with asymmetric information. This article, published in the Quarterly Journal of Economics in 1970, earned Akerlof the Nobel Memorial Prize in Economic Sciences.

Akerlof and his co-author Janet Yellen present the rationale for the efficient wage hypothesis in “The Fair Wage-Effort Hypothesis and Unemployment,” which contradicts the conclusions of neoclassical economics. This work also introduces the concept of economic “gift exchange” games.

George Akerlof and Rachel Kranton, as collaborators at Duke University, established the field of identity economics by incorporating social identity into formal economic analysis. Akerlof and Kranton draw on social psychology, economics, and other fields to argue that people’s preferences are not only for different goods and services but also for how they are seen and identified in society.

Akerlof and the Reproductive Debates

In the late 1990s, George Akerlof’s ideas became a notable point of interest for both sides of the legal abortion debate. Akerlof defined a phenomenon called the “reproductive technology shock” in articles published in The Quarterly Journal of Economics, The Economic Journal, and other forums. He argued that the new technologies supporting the sexual revolution of the 20th century, modern birth control methods, and legal abortion not only failed to decrease out-of-wedlock childbearing rates, but also increased them.

According to Akerlof, these technologies particularly disadvantaged women who did not use them in terms of old social and sexual assumptions, expectations, and behaviours. For example, the existence of legal abortion allowed men to view their children not as a product of sexual intercourse but because of a woman’s choice, increasing their tendency to reject the idea of mandatory marriage and fatherhood responsibilities.

While Akerlof did not propose legal restrictions, he supported those who recommended his analysis. As a result, he was quoted with approval by conservative and Republican-leaning analysts and commentators, despite being associated with liberal and Democratic policy positions.

George Akerlof, “Looting” and Macroeconomics

In 1993, George Akerlof and Paul Romer explained how under certain conditions, company owners could loot the company and gain value in their work titled “Loot: The Economic Underworld of Bankruptcy for Profit”. Loose regulations, poor accounting or low penalties for abuse may cause company owners to prefer paying more than the company’s value and then not paying their debts. Profitable bankruptcy is often the result of the government guaranteeing a company’s debts.

As president of the American Economic Association in 2007, Akerlof emphasised the importance of natural norms for decision-makers and showed how discrepancies between theory and macroeconomic observations can be explained. Akerlof proposes an agenda for explaining macroeconomic behaviour using social norms and is one of the founders of social economics (alongside Gary Becker).

Akerlof is a member of Economists for Peace and Security and co-directs the Social Interactions, Identity, and Well-Being program at the Canadian Institute for Advanced Research. He sits on the advisory board of the Institute for New Economic Thinking and was elected a member of the American Academy of Arts and Sciences in 1985.

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