18 Private Information Information  One common assumption in economic analysis: perfect information …  … buyer and seller have the same information

Asymmetric Information Often, information is  imperfect  asymmetric SellerBuyer Adverse Selection  uninformed buyers are likely to attract lemons Buyer

Money-Back Guarantees, Warranties, and Independent Quality Ratings  Ways for suppliers of plums to identify themselves. warranty Lemon Laws  Attempts to protect buyers.

Moral Hazard  actions of one party to a transaction affect costs or benefits of the other party  those actions cannot be monitored