Give an example, real or imaginary, of an adverse selection problem.Your example must clearly point out:what information is private/asymmetric (is it an attribute or an action?)which party has the private informationwhen does the information asymmetry arise (before or after the contract/transaction?)what is the likely outcome and in which way it can be inefficient

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Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter19: The Problem Of Adverse Selection

Section: Chapter Questions

Problem 19.5IP

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Give an example, real or imaginary, of an adverse selection problem.

Your example must clearly point out:

what information is private/asymmetric (is it an attribute or an action?)
which party has the private information
when does the information asymmetry arise (before or after the contract/transaction?)
what is the likely outcome and in which way it can be inefficient

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