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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]
Examples of this problem are adverse selection, [1] moral hazard, [2] and monopolies of knowledge. [3] A common way to visualise information asymmetry is with a scale, with one side being the seller and the other the buyer.
The problem of adverse selection is related to the selection of agents to fulfill particular responsibilities but they might deviate from doing so. The prime cause behind this is the incomplete information available at the desk of selecting authorities (principal) about the agents they selected. [34]
In life insurance, adverse selection describes the occurrence of individuals with a high-risk profession, hobby or health condition applying for life insurance more often than low-risk individuals ...
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 adverse selection, the borrower type is only known by the individual and occurs when there are not enough tools to screen the borrower types. One of the examples of screening is offering different types of funds having different interest rates and asking different amounts of collateral in order to reveal the information about the type of the ...
In contract theory, the terms "screening models" and "adverse selection models" are often used interchangeably. [13] An agent has private information about his type (e.g., his costs or his valuation of a good) before the principal makes a contract offer. The principal will then offer a menu of contracts in order to separate the different types ...
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