Question

How did Medicare solve the lemons problem? How do certified used cars solve it? How do “good old boys” networks solve it?

Answer 1

Medicare solved it by creating a uniform price regardless of medical condition. Thus letting the good outweigh the bad. If there are enough healthy people who are covered by Medicare then they will help to cover the cost of those who really need the benefits of the insurance policy. Certified cars solve this issue by making each car an equal quality. Each car is expected to have repair costs that are similar to the one sitting next to it in the lot. It may not be the same issue, or happen at the same time, but they will both equally breakdown. The “good old boys” network helped to solve the lemons problem by being some of the only ones to get the credit to purchase vehicles. They were part of the “in” crowd and they knew they could get their hands on whatever they wanted. Crappy or not, they got it.