POLI 328 Study Guide - Midterm Guide: Fire Alarm System, Single Market, Tactical Voting

• School: McGill University
• Department: Political Science
• Course: POLI 328
• Professor: Sven- Oliver Proksch

Document Summary

Arthur lupia reading: adverse selection: [smith knows things about himself that brown does not. ] Smith and brown then agree to a contract. Information is incomplete: arise when an agent has attributes that a principal cannot observe. A classic example of adverse selection arises in the context of health insurance. As kreps (1990: 626 7) notes: if premiums are set at actuarially fair rates for the population as a whole, insurance may be a bad deal for healthy people, who will then refuse to buy. Only the sick and dying will sign up. And premium rates must then be set to reflect this. " also see akerlof (1970) about similar properties in used car markets. da: adverse selection is a problem in many aspects of delegation most notably elections. To see this problem, suppose that only two types of people choose to run for elective office those who are truly public-spirited and those who line their own pockets with public resources.