Nobel Prize winner Akerlof proposed lemon theory and showed how information asymmetry in the market creates an unbalanced information where poor quality offerings (lemons) wipe out good quality offerings in the market. Akerlof’s model was originally developed in the context of used cars in the market where lemon problem was frequently observed. However, the theoretical problem lemon is not limited to the car market but also valid in other markets with the same situations. The present study focuses on information asymmetry observed in the education system in UAE because of an “information gap” due to the asymmetric information.

 - Amjad & Adnan (2016)

Adverse selection as pioneered by George Akerlof reviewed the markets for insurance, used automobiles, credit and employment. He reviewed adverse selection in the context of asymmetric quality information about the purchase of used automobiles, in a bid to explain market failures and observed price differentials. He exposed that the premise that the owner of the car to be sold is aware of if the car is a good one or a bad one which he referred to as a lemon. Prospective buyers are not equipped with the requisite information needed to make choices while the seller has more information which distorts the bargaining process, thus establishing a market failure. Soon lemons drive out the availability of good cars since they all sell at same prices. On most occasions, huge amounts are put into educational institutes via advertisement and promotions, while graduated students also spread the news about their alma mater to friends and the general public which would to some extent influence decisions about choice of educational institutions. However, there exist a myriad of options for educational institutions for which applicants have so little a time to enquire about most, thus, confused as to patronage. Most students end up selecting low universities, which reassures the lemon theory that low-quality universities end up driving out the high-quality ones. Economic growth of any economy is argued to be predetermined by ability of the educated population, thus, standards are set for the acquisition and verification of the minimum proficiency level for students in the given country. Many students though do not meet up with these standards as required for, in the labour market.

Most of the universities focus on developing several unwarranted skills with no impetus given to students in decision making that are in sync the with industry requirements.

The selection of low quality universities makes students spend more to receive less education in terms of quality. This further is enabled by the absence of requisite information for the students in the decision-making process. This in other words would mean that information asymmetry causes the poor selection of programmes to be engaged in by students. The students are not the only ones who are victimized by the absence of information, the universities in turn suffer from same information asymmetry, in that, they lack knowledge of the quality of students enrolled, thus taking on students whose skills are not commensurate with the requirement for the enrolled programme. It is for this reason that universities which are high-quality stipulate target GPAs precursory to admission into the school as acquired from previous graduating exams.

Asymmetric information is defined as occasions where one party is in possession of information which places it at advantage over the other party, such that the details about the students [in the context of the university discourse] without the reversed information gap filled causes wrong choices for the other agent. It occurs or is explicable if one party has information the other party does not, or the behaviour of the one party is unobservable by the other thus placing the one party ahead of the other, even after a contract has been drawn. Moral hazard and adverse selection are problems associated with information asymmetry, popularised in the context of insurance. This is why traded items in most markets cannot be evaluated for quality.

In reality, majority of the universities are engaged in enacting the study and acquisition of several skillsets which are remain gratuitous, thus not helpful in enabling students make better choices in tandem with industry requirements. Scientific-related subjects are tasking in terms of being analytical, thus the curriculum in present time focuses on preparing the current generation for new challenges. It thus would take a curious mind to adapt to the realities of the time. But then with students and their parents alike not having requisite information about the quality of schools, and the services they offer in relation to their cost [of education], they are more likely to select the low-quality institutions. On the other hand, many universities pursue a traditional style of teaching, thus barely beaming light on state of the art teachings and improved knowledge-based researches. This further lends support to the lemon theory of the bad goods and or services, driving out the good ones – the low-quality universities driving out the high-quality ones in this regard – until there no longer is a market for educational institutions. To control for these, students are empowered with visiting the schools of choice, scheduling meetings with academic advisors, using school prospectus and related documents to equip themselves in order to make informed choices as it concerns quality of the educational institution.

In conclusion, there are many key agents in the market for university education. The UAE require higher education as with most other economies, in order to square up with the challenges of the present time, but the prospective students have little time to decipher the components of financing education based on its quality, but are unsurprisingly affected by the outcomes of their choices. Given these issues, the institutions as the Ministry of Higher Education (MoHE) in UAE advocate for the bridge in information gap between students and the universities through a renewed impetus for reform in multi-disciplinary factors which impact on every stakeholder, thus bringing dynamism in the education system.

The above article is a review piece of the article below. Ideas contained therein are also credited to the authors cited within in base article.

Amjad, Khan Suri & Adnan, J. (2016). Educational Institutions and Information Asymmetry Observation in UAE. Journal of Global Economics, 4(3); 1-3