Tag
adverse_selection
2 findings
Finance & microfinanceExogenous Indexing for Moral Hazard EliminationLinking payouts strictly to third-party automated rain gauges eliminated individual claims verification costs and completely removed moral hazard and adverse selection incentives.Expert TheoryFinance & microfinanceMicrocredit Asymmetric Information Market FailureMicrofinance institutions require charging a 38% APR (up from 17.5% baseline) to break even under adverse selection. No zero-profit separating equilibrium exists if moral hazard elasticity exceeds 0.46, leaving regular rigid contracts as constrained efficient for lenders.Expert Theory