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