When government mandates participation in a program to solve an information asymmetry problem,it is trying to prevent:
A) moral hazard.
B) adverse selection.
C) building a reputation.
D) illegal screening.

Question

Quizplus · Accepted Answer

Mandating participation in a program is a way to combat adverse selection, which occurs when one party in a transaction has more information than the other and uses it to their advantage. By mandating participation, the government is ensuring that all parties have the same information and preventing those with more information from opting out, which would lead to a higher concentration of those with less favorable characteristics in the program.

When Government Mandates Participation in a Program to Solve an Information