Too much trade: the hidden problem of adverse selection

David de Meza, Francesco Reito and Diane J. Reyniers

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Adverse selection famously leads to the crowding out of socially beneficial trades. We show that even more trades may be simultaneously crowded in. The reason is that, in the absence of complete unravelling, “lemons” fetch more under adverse selection. It is demonstrated how these “bad” trades occur in insurance, credit and used-car markets, and some policy implications are discussed.

Keywords: adverse selection; insurance; credit; used cars (search for similar items in EconPapers)
JEL-codes: C13 D14 D82 (search for similar items in EconPapers)
Pages: 6 pages
Date: 2021-12-01
New Economics Papers: this item is included in nep-cwa, nep-ias and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in Journal of Public Economics, 1, December, 2021, 204. ISSN: 0047-2727

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http://eprints.lse.ac.uk/112574/ Open access version. (application/pdf)

Related works:
Journal Article: Too much trade: The hidden problem of adverse selection (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:112574

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