ECON 1000 Lecture Notes - Lecture 22: Voting Paradox, Condorcet Method, Borda Count
11 Dec 2016
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Document Summary
People might have incentives to hide information: hidden actions: principals, agents and moral hazard. Moral hazard: the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behaviour. Agent: a person who is performing an act for another person, called the principal. Principal: a person for whom another person called the agent, is performing some act. Can happen in life and in the workplace: hidden characteristics: adverse selection and the lemons problem. Adverse selection: the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uniformed party: signalling to coney private information. Signalling: an action take by an informed party to reveal private information to an uninformed party. Signals must be more beneficial for firms with a better product: screening to induce information revelation. Screening: an action taken by an uninformed party to induce an informed party to reveal information: asymmetric information and public policy.
