Chapter 11
Asymmetric Information and Public Goods
IN THIS CHAPTER
Realizing how markets depend on full disclosure
Seeing how secrets can ruin a market
Examining the used car and insurance markets
Understanding that markets can’t always provide public goods
Getting public goods from governments and philanthropists
Markets provide nearly everything that people consume. But sometimes they fail to provide certain products that people want, or they provide too much or too little of a particular good or service. Economists refer to such situations as cases of market failure. In this chapter, I discuss two of the most interesting and common causes of market failure:
- Asymmetric information: This situation occurs when either the buyer or the seller knows more about the thing they’re bargaining over than the other party knows. The classic example is a high-quality used car: The owner who’s trying to sell the vehicle knows all about the car’s high quality and reliability, but the potential ...
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