write a brief essayabout asituation in which you have had to dealwith problems created by a asymmetric info:?

Question

theasymmetricinformation are adverse selectionand moralhazard. beginby briefly summarizing the circumstances.then indicate the specific strategies or measures that you employed to reduce the likehood of adverse selection and moral hazard.
Please help i don not know where to start because i can't talk about buying or selling car, loans etc.....

Answer 1

i think you could start by describing any situations in which one knows or has more and better information than the other and the two people engage in any businesses. examples are plenty: food sellers know better the ingredients of their goods than the buyers (fatty, too sweet, etc). electorates may not know the real story of the politicians they elected (because of cover up etc). How to reduce? by asking them to disclose all or some information to public, buyers or anyone interested in their products. Disclosure is not going to eliminate, yet it is going to reduce the likelihood of asymmetric info. hope this helps.

Answer 2

Buying a CD is a possible example. When you go into a music store and see a CD for sale from a band you like, you may not know whether it is any good just by looking at it. The musician could have been drunk and just put a heap of their worst tracks out. They and the record label would know this when they released the CD, but you don't.

You can overcome this by doing research - asking your friends, listening to it in the store or on-line samples. If you think it might be rubbish, you won't pay as much either, so the artist has an interest in also helping to address the asymmetric info. They might put samples on a web site or do promo tours involving samples, encouraging radio stations to play it... Reputation also plays a role since if you expect the artist will want to release other CDs in future, they will have an incentive to ensure the quality of their work, even though this might not affect how many of their current CD they will sell.