Genesis of market failure of adverse-selection-type in problem of effective capital allocation

Olena Sokolovska and Dmytro Sokolovskyi ()

MPRA Paper from University Library of Munich, Germany

Abstract: The paper investigates the problem of possibility of investment allocation by economies according to adverse pattern, which can ultimately imply the rise of situation of market failure. We consider the transformation of “ideal” capital allocation into allocation of adverse-selection-type, which occurs as a result of migration of agents of different types. We conclude that the uncontrolled agents’ behavior, due to their bounded rationality, can lead to adverse selection state, when the less effective agents are investors in economies with most favorable investment climate, and vice versa.

Keywords: capital allocation; adverse selection; market failure; behavior of agents; maximizes; satisfiers (search for similar items in EconPapers)
JEL-codes: D03 E22 (search for similar items in EconPapers)
Date: 2012
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