Writing Homework Help

This week’s discussion will focus on asymmetric information, moral hazard, and adverse selection. Sometimes there can be confusion as to these terms’ meanings and connections. To prepare for the discussion, you should watch the following video:

Moral Hazard.

Additionally, review the following information and documents.

• George Akerlof shook much of the economic world and won the Nobel Prize for asking, What if everybody that is a party to an economic transaction doesn’t have the same information? You may remember one of the basic assumptions of competitive markets is that buyers and sellers have perfect and exactly the same information. There is a similar assumption for imperfectly competitive markets that information can be obtained at little or no cost. For a huge number of markets, neither of these is even close to true. When information is not the same on both sides of the market—or when it is very hard or costly for the unknowing party to gain parity of information, we are likely to find market failure called adverse selection or moral hazard.

Essential Ideas

To do this week’s discussion, you need to understand these ideas.

Below you will find an article from the Economist explaining George Akerlof’s idea, labeled by the Economist as one of the seven greatest ideas in economics. You will also find a list of videos that will walk you through topics, such as what is asymmetric information, what is moral hazard, what is adverse selection, what is signaling, and other ways we resolve problems of asymmetric information.

Secrets and Agents; Information Asymmetry.

Asymmetric Information and Health Insurance.

Solutions to Moral Hazard.

shavanna – this is the student response

RE: Week 8 Discussion

Good Day Everyone

Asymmetric Information in Decision Making

An asymmetric information scenario occurs when one of the players in a transaction has more information than others, bringing about an undue advantage position over the second party (Zimmermann & Jellal, 2001). Closely related is the moral hazard; it occurs when people with asymmetric information are tempted to exploit due to their information advantage position. An adverse selection scenario entails the buyers and sellers having different information on some aspects of product quality (Pyne, 2004).

The hiring of police officers requires that individual applicants possess a college degree, and the requirement is placed despite police work rarely requiring college course material.

Individuals with college degrees are likely to be critical thinkers, thus reducing the risk of a moral hazard. The case is different for high school students who may be rigid in their thinking. Police officers who public members easily exploit may not be good for the police force.

The government holds asymmetric information in the police force in the hiring process. As the employment agent, the government understand the need to optimize the value from the officers, the need to retain a low crime rate and associated expenditure related to maintaining the police force (Pyne, 2004), with the government being the sole holder of such information, it sets such high qualification standards for officers.

Adverse selection in the police force happens when the recruiters have information that recruits and the general public don’t have (Zimmermann & Jellal, 2001). It may include the lifetime value of a police officer in the force, the nature of crimes or the desired value of service, all of which add value to the effectiveness of the police force.

References

Pyne, D. (2004). Can making it harder to convict criminals ever reduce crime? European Journal of Law and Economics, 18(2), 191–201. https://doi.org/10.1023/b:ejle.0000045081.01565.ed

Zimmermann, & Jellal, M. (2001). A note on optimal law enforcement under asymmetric information. MPRA Paper. Retrieved November 13, 2021, from https://ideas.repec.org/p/pra/mprapa/38460.html.