Tag: Market Failure
Adverse selection happens when one party in a deal knows more than the other, leading to unfair outcomes. This can be a big issue in areas like insurance, loans, and used car sales. While there are strategies to manage it, unchecked adverse selection can cause market problems and privacy concerns.
Information asymmetry is when one group knows more than another during a deal or interaction, which can tilt the balance of power. This can lead to unfair transactions, market issues, and power imbalances in areas such as finance, health, politics, and education, impacting decision-making and overall fairness.
Moral hazard refers to situations where a party takes on riskier behavior because they’re shielded from the consequences. It often occurs in insurance, finance, and healthcare, potentially leading to market inefficiencies and higher costs. Strategies exist to mitigate it.