◆ MARKET FAILURES & POLICY
Information Economics
Asymmetric information, adverse selection, moral hazard, signaling, and the principal-agent problem.
11 articles
FeaturedMoral Hazard: When Being Protected Changes How Carefully You Behave
Moral hazard is the change in behavior that happens once you are shielded from risk. It shapes insurance design, bank regulation, and policy fine print.
Read more →Deep Dives
4 articles
◆ INFORMATION ECONOMICS
What Is Asymmetric Information? The Economics of Knowing More Than the Other Side
Asymmetric information is when one side of a deal knows more than the other. It shapes insurance, used cars, hiring, and lending — and can break markets.
◆ INFORMATION ECONOMICS
The Market for Lemons: How Asymmetric Information Unravels Markets
George Akerlof's 'market for lemons' shows how, when buyers cannot tell good from bad, average pricing drives quality out until only the lemons remain.
◆ INFORMATION ECONOMICS
Signaling and Screening: How Markets Overcome Information Gaps
Signaling and screening are the two ways markets move hidden information across an information gap — one led by the informed side, one by the uninformed side.
◆ INFORMATION ECONOMICS
The Principal-Agent Problem: When the Person You Hired Has Different Goals
The principal-agent problem arises when you hire someone to act for you but cannot fully observe what they do — and their interests don't match yours.
Quick Answers
6 termsSignaling and Screening: How Markets Handle Hidden Information
Signaling is when an informed party communicates their type to an uninformed party. Screening is when the uninformed party designs mechanisms to reveal the…
Read more →Asymmetric Information: When One Side of a Deal Knows More
Asymmetric information exists when one party to a transaction has significantly better information than the other.
Read more →The Principal-Agent Problem: When Your Representative Has Different Interests
The principal-agent problem arises when one party (the principal) hires another (the agent) to act on their behalf, but the agent has different interests and…
Read more →Moral Hazard: When Insurance Changes Behavior
Moral hazard occurs when one party takes more risk because another party bears the cost of that risk.
Read more →Adverse Selection: How Information Gaps Attract the Wrong Participants
Adverse selection occurs when one party's inability to observe another's characteristics before a transaction causes the worse-than-average participants to…
Read more →The Market for Lemons: How Bad Products Drive Out Good Ones
George Akerlof's Market for Lemons model shows how asymmetric information about quality can cause high-quality goods to be driven out of a market entirely,…
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