Regardless of whether or not screening or signaling occurs in markets with adverse selection, the equilibrium will always be less efficient than an equilibrium in the same competitive market if there were no asymmetric information.

Question

Quizplus · Accepted Answer

Adverse selection leads to a situation where higher quality goods or services become indistinguishable from lower quality goods or services, leading to an inefficient allocation of resources. Regardless of whether screening or signaling occurs, the presence of asymmetric information will always result in a less efficient equilibrium than a situation without adverse selection.

Regardless of Whether or Not Screening or Signaling Occurs in Markets