Private information-collection firms fail to eliminate the adverse selection problem because
A)the law does not allow them to disclose private information about the creditworthiness of firms.
B)they do not monitor borrowers after loans have been made.
C)some investors who do not pay for their services will still profit from them.
D)most companies refuse to provide them with any information.

Question

Quizplus · Accepted Answer

Private information-collection firms can't completely eliminate the adverse selection problem because of the free-rider issue, where some investors benefit from the information without paying for the services. This undermines the effectiveness of these firms in mitigating adverse selection since not all market participants contribute to or equally share the costs of generating and disseminating this information.

Private Information-Collection Firms Fail to Eliminate the Adverse Selection Problem