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What is adverse selection?

Definition of adverse selection Adverse selection occurs when there is asymmetric (unequal) information between buyers and sellers. This unequal information distorts the market and leads to market failure. For example, buyers of insurance may have better information than sellers.

What is adverse selection in capital markets?

The presence of adverse selection in capital markets results in excessive private investment. Projects that otherwise would not have received investments due to having a lower expected return than the opportunity cost of capital, received funding as a result of information asymmetry in the market.

How does adverse selection affect employment?

Employment: Adverse selection can occur in the labor market when employers have better information about job candidates than the candidates themselves. This can lead to employers discriminating against candidates based on factors that are not observable to the candidates, such as race or gender. How can adverse selection be mitigated / overcome

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