1 point: Adverse selection
1 point: Sellers could offer a warranty with the car that pays for repair costs.
1 point: Moral hazard
1 point: Each insured person can be made to pay a co-
1 point: Moral hazard
1 point: Pay the workers “piece rates,” that is, pay them according to how much they have produced each day.
1 point: Adverse selection
1 point: Provide potential employers with references from previous employers.
In what situations have you experienced asymmetric information? What screening or signaling was involved?
Do you experience moral hazard by taking fewer precautions when the cost of damage would be at least partially someone else’s problem? For example, this might be the case when a product is under warranty, a car or home is being rented, or insurance would cover the cost of damage.
Describe a case in which you used a seller’s reputation to deal with asymmetric information.