Screening mechanisms are designed to ________ the problems of informational asymmetry.
A) reveal
B) help to alleviate
C) completely solve
D) exacerbate

Question

Quizplus · Accepted Answer

Screening mechanisms help to alleviate the problems of informational asymmetry, but they do not completely solve them. They aim to reduce the adverse selection problem by identifying and selecting the most suitable or qualified borrowers, clients or suppliers, for example, based on their characteristics, behavior, history or performance. This increases the information available to the lender, insurer, employer, or buyer, and reduces the chances of moral hazard or adverse selection. However, screening mechanisms cannot eliminate informational asymmetry entirely, as some hidden or unknown factors may still affect the outcome or performance of the transaction or relationship.

Screening Mechanisms Are Designed to ________ the Problems of Informational