Asymmetric Information – Adverse Selection Problem

Abstract

The present paper makes an introduction in the contract theory starting with the definitions of asymmetric information and some of the problems that generate: moral hazard and adverse selection. We provide an insight of the latest empirical studies in adverse selection in different markets. An adverse selection model, based on Rothchild and Stiglitz is also present to give a perspective of the theoretical framework.

Keywords

• asymmetric information
• adverse selection model
• efficient contracts