Week%2012%20Session%202%202009

Week%2012%20Session%202%202009 - Microeconomics 1 Econ 1101...

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Microeconomics 1 Econ 1101 Week 12 Economics of Information cont Text: Chp. 14 Outline: Asymmetric Information Principal Agent Revision Diane Enahoro Session 2 2009 1
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Diane Enahoro Session 2 2009 2 Market Failure cont, Asymmetric Information and Uncertainty Buyers and sellers do not have the same information => inefficient outcomes and “market failure” There is the possibility of “opportunistic” behaviour 1. Pre market – adverse selection : only people with private information which they can use to exploit other parties are attracted to make market contracts 2. Post market – moral hazard : agents do not bear the consequences of their actions. Examples: Adverse selection–the “market for lemons” Adverse selections and moral hazard–the market for loans and the insurance market including health insurance.
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Diane Enahoro 3 The Market for “Lemons” asymmetric information leads to a deterioration in the second hand market. Zoe has a
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This note was uploaded on 08/06/2011 for the course FIN 3616 taught by Professor Henry during the Three '11 term at University of New South Wales.

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Week%2012%20Session%202%202009 - Microeconomics 1 Econ 1101...

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