Transcript Chapter 18

18
Private Information
Information
 One common assumption in
economic analysis: perfect
information …
 … buyer and seller have
the same information
Asymmetric Information
Often, information is
 imperfect
 asymmetric
Seller
Buyer
Adverse Selection
 uninformed buyers are likely to attract lemons
Buyer
Money-Back Guarantees,
Warranties, and Independent Quality Ratings
warranty
 Ways for suppliers of plums
to identify themselves.
Lemon Laws
 Attempts to protect buyers.
Moral Hazard
 actions of one party to a transaction affect
costs or benefits of the other party
 those actions cannot be monitored