AREC 384 economics of information

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violations of perfect information
- incomplete information (can be missing for anyone, not just consumer)
- inaccurate information
- untimely and irrelevant information
how can imperfect information affect a market?
- can lead to oversupply of low-quality goods or to the complete absence of a market
- imperfect info on food quality and ESPESH food safety can have big economic and social impacts
asymmetric information

in some cases the seller knows more about the product than the buyer
credence goods

traits and quality unobservable even after consumption
search goods

traits and quality are easily observable prior to consumption
experience goods

traits and quality are known only after consumption
moral hazard
- "hidden action"
- refers to situations where one side of the market can't observe the actions of the other side
- ex. auto insurance??
adverse selection
- "hidden information"
- refers to situations where one side of the market can't observe the "type" or "quality" of the goods on the other side.
- ex. health insurance or all you can eat buffets
how do moral hazard problems occur in food markets?
- high quality (safer) products are more expensive to produce than low quality (unsafe) products
- buyer (individual or firm) cannot directly observe the true quality (safety)
how does adverse selection problems occur in food markets?
- food quality not homogeneous and often not observable
- consumers know there is high and low quality goods
- WTP is such that high quality goods driven out of the market by low quality goods

Author

hcunning

324936

Card Set

AREC 384 economics of information

Description

lecture 17

Updated

2016-10-26T01:45:44Z

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