Difference between revisions of "Adverse selection"
| Line 5: | Line 5: | ||
:[[Adverse selection]]. The problem that arises when one party knows more about the quality of the good than the other, and as a result, the party with less knowledge must worry about ending up at a disadvantage. | :[[Adverse selection]]. The problem that arises when one party knows more about the quality of the good than the other, and as a result, the party with less knowledge must worry about ending up at a disadvantage. | ||
According to [[Macroeconomics by Mankiw (7th edition)]], | According to [[Macroeconomics by Mankiw (7th edition)]], | ||
| − | :[[Adverse selection]] | + | :[[Adverse selection]]. An unfavorable sorting of individuals by their own choices; for example, in efficiency-wage theory, when a wage cut induces good workers to quit and bad workers to remain with the firm. |
[[Category: Economics]][[Category: Articles]] | [[Category: Economics]][[Category: Articles]] | ||
Latest revision as of 16:32, 1 July 2020
Adverse selection is the problem that arises when one party knows more about the quality of the good than the other, and as a result, the party with less knowledge must worry about ending up at a disadvantage.
Definition
According to Principles of Economics by Timothy Taylor (3rd edition),
- Adverse selection. The problem that arises when one party knows more about the quality of the good than the other, and as a result, the party with less knowledge must worry about ending up at a disadvantage.
According to Macroeconomics by Mankiw (7th edition),
- Adverse selection. An unfavorable sorting of individuals by their own choices; for example, in efficiency-wage theory, when a wage cut induces good workers to quit and bad workers to remain with the firm.
