Name > Prriyorn kor Singh Envollment Neo: 2491603) Subjeet Micvoeconomics IT Courpe : PhDMicroeconomics — Assignment 1] Taanify tre pe a InFermation —asymmey, 17 the qollewing” Scenarion and give sobionalisation foc Ha Apt sustowrant , ond hid (4) Fred Lives In on apontment shove a aapavemunt wlwaya simula Uke burgers and Fite He hes a unswecers Pally ae get the yusturant qeoney te Paoblem Ans (D- Ty this “Cone tho is hidden action a type % moral, arard. Whee The sustanyunt tone cation Cle peor exhaust tystem, vant la cAivectly, affect Fred Living, conditions. * The vestourant Seugite ower cost Ay nor Being the tse, while Heal beany th. magatoe comtepuinca, eo Hae Uh ig toval turer because sustacronh hos Aes intentive to wet suspen sibly- beeauye it dees net rupee direct consaguin a, ~TE A not Adverse geletion pecaue Pred olrendy, Lives the Te preblm anna offer the contact ~ Tt ip abo a yee] Negative. Externabiay, Ll halfeony 4» coos bebow Shi rualizes that the she sty dock the backdoor . Because the hag venter's insurance , she, dectdis ik Is mot worth being, Late Just to hoc back to feck, He clooy. Ane ®). This sitvadion in aclassic example o Moral Hazard. tin less cautious and altevs her behavioor becoovs . The Inability, gy the insurance Maria becomes she hap enter's ins Urance Company So monitor hee behavinyy susulty in skier bebaviou afer coverage ix happendls (>. Your Friend , Paris, hag AupeY vith parents whe gave an Audis tov her 16 pithday ano lavished hey esith uxv items throughout her life She tells yw that che ha never fib mud to get good grades i BChoo) ox Bulle at Jeb her penis — provides hey ith everything theAnB]). Parris shows moval Hazavd ince she. ib avoare that than purrenta will always be thn for hor me matters what ShA does. Brea, hin porrenta ane super vith th acts Glee suid +: a. Nix parents sha hes Tuvey thought Fe dlo ork Neve A] choose the corect opltay]é. and juke. ths Bee on - pefprvad hezavd i8 & problem jin car 2upair mada becaue ; |) Cav owner might: Pay money for supair oy a service that wor not nuded — Neve the problem 9, moval Hearivd become burr the Probl gh as bic. inpovmettion where the mechanic. meq exploit te Lust cor ownty., Mechanic hes more Sxpevtibe anol information than can evoner. Thus , the Mechanic mo. overehonge oc Avagett vnnecessary. repolyp. &) The car toner might: opt not bs gtk a supa'e drat was nuded for fear a being “pped obty- fear cs being sipped op Seads ite -avoid the nacessong TUpaivs. ashen the cor ie meecleol © The car exoner ton move information about the cours Stes than the car mechanic. Ths | Corong becaue car mechanic hos to be more information than cov owner. 3] Th tne. content oy adverAc aeclection » CUSCUrs surable Cxampls scrtening and signalling what one the othey ways to prevent adverse selection ? Anglo] - Adverse Selection LT hidden information] 2 a Situation where OM agent Cannot observe some privatei Fo" for ‘infornation a ‘the other ents Chiddin information), Gy Aker lor (1970). Classic example 1k Manled~ yor Lemons * George. Akextor (1970) Th. Common approach tp prevent advente. elon » att 9, Lohich, hulp the Uninformed agent to become better & od es Sereaning- and_sijnaling.. Screening example labor mankit Ruring ¢ke hiring andl sucvitmint Stage. 9, * job appUcation, Pro ces Hising! pan C agpnt with Lu infomatibn) allempra Ao ug) ae tha char aoferistica a, peterdial job Conc lata Cage sith more. Ingermation) . Tt metvols — Application survias — Aptitude eatin, and outermat ~ Trtewviews Ths urante mated sPichael Rothschild on SHYli42 — Concloeded —puycouneh On the fou motivieewals can t Presented with asymmetic ¢_goseph_ rawr. merjet enol ove thal positon. in the monkit cohen infornakion. Pred manket - pustnerses opply- Acveening . fechiques Ushen Ferevabion ancl. adopting aH RO Brodloce thea. This tnolodus -— Research and davelopment — Best monketrny ~ Procter land, Gh (ny. Anothur Lemmon fol As prevent adverse selretion cid ce infoouc, panty Grorkew) clsing somethin Micidy ou as earthing ad a grodwat etgree , to Bignal her tye # the uninfownscl party (town ) |Warrantia + Ame offering wumerndes imal confi dbnce in tw Wanrantioa , x to Puly ge draw produc. A layer wanunty indicat » = el Finaneral Disclosuw * Compania may- disclose duaild ginaneiah Blotinsn ts oto ginal Gironcial health, aro vache, investor> concerns than, woays 7% prvenh Adwrpe geltetton ane Aagal sul - te most counties provide buyers with rightz that can help amilioral adverse. selectton. problems , . Poolin, and mandatory. participation : Tr health insurance , Posting y Pevticp , manda to Participation, aves a, Attyation. where only. high- TSA Anclivtelwads opt - Tivcl partys Vert ftation + eect vatings , avdt~ ruporty or certifical, FEN Ces nedluce Mnfoonaction. Oagmmetny. op Providing credible. information. Lentreia and Iiteriver + confer clegr incentives eam help sort Aiport . dee en, othe mene F ingurane thnx win, Aeluctihles “ond premiums can indloce Belb-fele chon, Conclusion: Oitgerent methods bike syrallng. ancl soreonin In “cual Cher 4 te v oe ge hersvong or burns eevsjon ane. includ finan cr ol culls PeGrManxe appraisal , es -. hC orolit ¢ heey fora, 7 avd hue, Ulrgerce preduns, thier one prkutial chal tasty. impliment M. ne lousever 77 Sereensn, is ce Ake bignal. moy- not be cred ble pools Guilibnum Cho & hOK -pualidy, participants —~ ‘ a igh FIL making Hk useing for ct Tbr ati) poeteane Bignabiy . : en Spnalingfable example tne different WI Dacus efh th hulp 5 Auifab ip! “ ways bp which the problem moral hazard may be . snuitadion avoicha or miatmized . Aye thuw any prackical Ainrter Fre Boh rsrgurws 2 Ans Moval Hazard Cor biddim action) A scenario ue eahich cur agent cannot obgerve the actions -takin by other Agends Moral huzavol anize either @) due te maby. Bp Printipal fe ebgerve action ff agent ©) Lack fart on the part gq Principal monitor oe ene Ways to Avotd or minimized mural Hazard Monrfovin this is costly. for the Fim Howewrr in tHe work. place , emplyers monitor emplope< -petpmmance thowugh Waubar evalwationn of bunveillance fo ensue Huy. Fulfull thi Pusporsibi lites fer monitoring. 4. be must not Know thin their efter ill be. Opneswike. , thy would Bra de gical, © tir effort is monitored, menitered , o ok hard only. ehen Peformance based Incentives + Sales employees may recive commission baged on the number oA eld, qs fe align the inde stp ] gent colth Principal oe weardin, ee r iA wim : ; in health insur hori) 2 Reolo ch bles te-paymandy ire insuvance cost shanty , hr ee rene ee eta ae af Medical sevvkes, The punpohe 74 tp ensuru thay inured party bears par ge ee eee doapte. eae: compan Ocenership stakes [Profit sharing > Guiving- arc ate 7 Shares tn actdtion to salaried metivaks fram “oto toward ine veasing the firms value, invtations Thue majr -prathtal Limitation one High. Moniforing, Coste : Constant supemsion Cecyy , " Dvarding ) con be expensi¥® and IMdrusive anol might not Gly Copfure. elder. e [fort -. : Equity and fairney Iss Ges vee chavin gy. machaniin, yay AE praperti onal AGG Leusen- ~income individual * Povformante th Her henol do Foantity. > expewtally. in Complex fKa or feam~ beseol ORES. Rim oshita Sib firms “procloctiOn che — Beco 9 Leek abo | * Freentive. sehames mag- bad Lo unintended behav Sten ow excessive USK anes gong the AyStem . * Meval hazed alto Ce Prinaple ; Lonsy clay Cur 2 no Fre wee team on cohich 6, Fae member, onli pre tenoly Cente, Couting. tron a fhe fTS Social loafing : neq Ls cbnotel * SB] Consider a akd—caré monkit » whe poulity. vs 4 / 20 ia LY - Qvali ty ib 4 -vonclom variable chose felon sip ObBevvecl the Reller , but not by the buyer > q a ca Tunlity. q Fis Oni Rory distibald . letuen: Oand 3s 4 }- gpa Y i valwerl o5 Aver by te buyer, ard on discounded Yore. ) Hane value. rw by the Beller. The buyer IM fo car larger valvation than the. eller. Sy oa Yho Giver he engnio 2 demonstrat that bed cara omen) Push ut goed cars Cpeaches) pron the manket , 9/ven presence - OS ymmahic MPormation CG) what will be oo {EF tar quality. in Uni feomely Ushi baled — peteweon © and 25 7 Ans cer) quality =4 % ib random variable rl zation y Observed Spe the Relea '€ Beller knows about the Car quat hy than the bayer WV. O.ne: ee G- cor (4) valved be buyer = x The buyer, Hhanshor esr & the con a Lovey the Better, the prices for which trodn makes both passes Th Ay- C2 Seller Poyh W= P- Bg. 24-2ys be 2 BU by te nelly T valuabior thay, bedescen Se ard q. beter Fe: 7 for erompte where a buyer oblatw adits = Usq-p “tag aTr the . ~ Cee ae A ctryormnee in formation. Baye . ep Prtee ‘p) Wh shefhe seuive positive, oxpected ctil vty Fy) = bye takin Sa), enpietel atiy 9 cory Ea) & p Fly) = 245 an ea Gye (tch fy) The buyer tur Cee pH aw price pit 3 “Pdo goss y Tr tha RKerawe 5 tne eee Spells ee become, max Ss r Pp 3a S.4 3 \ Pp a3 Th dame pO munt the. Seller con reise fhe price P _ the Participad ton Cons troung- Ools oty 1eelen = 3 2 Bat Ge WAVES en Belved "8 prime «tery a Ber ny Aiigheat- wee epteble : Pre i 4, Buyer 5 0x dighen pre Yieloly nigactive ae sana fhe buger . Thad rite, however wee a — to Ber Save with 7 Se "hes v0 a PRysa. Sy ro R yyy concli'om — enten'ly 2 22g Le =a sq nig cars coith qualia above op 4 unprptebl. Gor sed Te buyers inability. 40 abpeme “cag ely Gadeseadls ty Tonext Sfence. the mont For Whar, "Perehu’ whue as bal can 3 Clemong onl: Mm thls market thus pocl Cours Frm tb marteet em iSE puthis out- gosd cara ® th ths cose se Quality A now clishibultc! fefusten V~ [e,27 C mi fermlay clis bi bated) Sellers VYalvation 2a Buyer's valuation 7 . The _ ae OM pth the care Orly. Th Hae prtce. Bteed Spel ty gellen's sural price ve, Pray or ? tes 2 Here only. Alle 2 casihe ., 4 Bel0 He Cay mm quali. 4 6 P eolll be. coiling, Now Bute! s €xptetenl the quan J - tility Y the cow ¢ mm 0G rok observe, 7 8 thom emptteton eUishibuted “bedevee n ol Sime ge Co, 27 : Elata< 3p] J 4 hey 4 fpr AP = = Io Ji 4 dy