Chapter 4A. Information Failures

Tài liệu Chapter 4A. Information Failures: Chapter 4AInformation FailuresCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Inadequate Buyer InformationAsymmetric informationUnequal knowledge possessed by the parties to a transactionBuyer has inadequate information on sellersUnderallocation of resourcesBetter information too costlyGovernment corrects with inspections, laws against illegal advertising, licensingLO6Inadequate Seller InformationMoral hazard problemOne party alters behavior after contract is signed that is costly to other partySellers have inadequate information on buyersUnderallocation of resourcesMay promote outcome it is trying to preventAuto insurance, unemployment compensation, athletes guaranteed contractsLO6Inadequate Seller InformationAdverse selection problemSecond party incurs major costs due to lack of informationOccurs when the contract is signedThose most in need of insurance will be those who purchase ...