ECO381H5 Lecture 1: Week 1 - Adverse Selection
Document Summary
Case 1: economics department utm: hiring: screening application, aea interview, campus visit, training: general training, campus-specific training, promotion and turnover: probation, tenure. Internal labour market: non-monetary incentives: intellectual research, peer evaluation. Time-based stock award (73%) -> performance-based stock award (36. 5%) + variable. Reduce maximum cash bonus (300% to 200%) Added relative tsr multiple to reward outperformance. Adverse selection: asymmetrical information among parties; one party is more informed than the other. Example 1: used car market: the uninformed party (buyer) offers a price appropriate for the average good offered for sale, average price = (na ve demand, sophisticate demand = . Efficiency loss: prices to participants do not reflect marginal costs, therefore on a benefit-cost basis individuals do not choose right health plan. Risk-sharing losses: desirable risk spreading is lost and premium variability is increased. Loss from policy distortion: health plans manipulate offerings to deter the sick and attract the healthy.
