Frontiers of Microeconomics Chapter 22
Frontiers of Microeconomics Chapter 22
Outline The economics of asymmetric information ● Political economics e Behavioral economics
Outline • The economics of asymmetric information • Political economics • Behavioral economics
Asymmetric Information o a difference in access to relevant knowledge is called an information asymmetry Examples: Hidden action Hidden characteristic
Asymmetric Information • A difference in access to relevant knowledge is called an information asymmetry • Examples: – Hidden action – Hidden characteristic
Hidden actions ° Agent a person who is performing an act for another person called the principal ● Principal a person for whom another person, called the agent, is performing some act o Moral hazard The tendency of a person who is simperfec tI monitored to gage in dishonest or otherwise undesirable behavior
Hidden Actions • Agent – a person who is performing an act for another person called the principal. • Principal – a person for whom another person, called the agent, is performing some act. • Moral hazard – The tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior
Hidden Characteristics: Adverse Selection and the Lemons problem ● Adverse selection: The tendency for the mix unobserved attributes to become undesirable from the standpoint of an uniformed party. Examples: used car, labor market, health Insurance
Hidden Characteristics: Adverse Selection and the Lemons Problem • Adverse selection: – The tendency for the mix unobserved attributes to become undesirable from the standpoint of an uniformed party. • Examples: used car, labor market, health insurance