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In most adverse selection models, it is assumed that the agent's private information is "soft" (i.e., the information cannot be certified). Yet, there are also some adverse selection models with "hard" information (i.e., the agent may have evidence to prove that claims he makes about his type are true). [26]
An example of adverse selection and information asymmetry causing market failure is the market for health insurance. Policies usually group subscribers together, where people can leave, but no one can join after it is set.
Death spiral is a condition where the structure of insurance plans leads to premiums rapidly increasing as a result of changes in the covered population. It is the result of adverse selection in insurance policies in which lower risk policy holders choose to change policies or be uninsured.
In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs associated with that risk, should things go wrong. For example, when a corporation is insured, it may take on higher risk knowing that its insurance will pay the
Signalling (or signaling; see spelling differences) in contract theory is the idea that one party (the agent) credibly conveys some information about itself to another party (the principal).
In statistics, self-selection bias arises in any situation in which individuals select themselves into a group, causing a biased sample with nonprobability sampling.It is commonly used to describe situations where the characteristics of the people which cause them to select themselves in the group create abnormal or undesirable conditions in the group.
Selection bias is the bias introduced by the selection of individuals, groups, or data for analysis in such a way that proper randomization is not achieved, thereby failing to ensure that the sample obtained is representative of the population intended to be analyzed. [1] It is sometimes referred to as the selection effect.
Supply-side economics is a macroeconomic theory postulating that economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. [1] [2] According to supply-side economics theory, consumers will benefit from greater supply of goods and services at lower prices, and employment will increase. [3]