ASSIGNMENT : Asymmetric Information

In your paper,
Select a financial institution or market and discuss the causes of asymmetric information.
Describe real-world examples of adverse selection and moral hazard problems for your institution/intermediary or market.
Evaluate the impacts of adverse selection and moral hazard problems on your financial institution/intermediary or market.
Discuss a principal-agent problem in your financial institution/intermediary or market. A principal-agent problem is a moral hazard problem between managers and shareholders.
Analyze whether your financial institution/intermediary or market can reduce the adverse selection and/or moral hazard problems.

SAMPLE SOLUTION

Asymmetric information is a situation where one party to a transaction process possesses greater knowledge than the other party about the particular field. Information failure has both advantages and disadvantages depending on how it is applied. Mostly, it creates a negative impact on individuals when the informed takes advantage of the situation to manipulate the uninformed into engaging in tasks with personal benefits. For instance, a car selling company can use the element of asymmetric information to sell a car at a price more than the marked one because of the buyer has…