taking some action to establish credibility despite possessing private information; a way to reduce adverse selection.

hire factors so that the marginal product per dollar spent on each factor is the same; a firm uses this rule to determine the costminimizing combination of inputs.

(of X) the amount of money needed today in order to receive X at a future date given the interest rate.

a long-term standing in the public regard that serves to reassure others that private information is not being concealed; a valuable asset in the face of adverse selection.

the situation that can exist when an individual knows more about his or her own actions than other people do. This leads to a distortion of incentives to take care or to exert effort when someone else bears the costs of the lack of care or effort.

a sum specified in an insurance policy that the insured individuals must pay before being compensated for a claim; deductibles reduce moral hazard.

occurs when an individual knows more about the way things are than other people do. Adverse selection problems can lead to market problems: private information leads buyers to expect hidden problems in items offered for sale, leading to low prices and the best items being kept off the market.

using observable information about people to make inferences about their private information; a way to reduce adverse selection.

information that some people have that others do not.

the present value of current and future benefits minus the present value of current and future costs.