Section 1
Sources of Inefficiency
Asymmetric Information: Adverse Selection and Moral Hazard
Asymmetric information, different information between two parties, leads to the following - adverse selection, moral hazards, and market failure.
Principle-Agent Problem
The principle-agent problem (agency dilemma) exists when conflicts of interest arise between a principal and an agent in a business setting.
Public Choice: Median Voters and Inefficient Voting Outcomes
Public choice may not lead to an economically efficient outcomes due to who votes, why they vote, and in what system they vote.
Behavioral Economics: Irrational Actions
Behavioral economics is the study of the effects of social, cognitive, and emotional facts on the financial decisions of individuals and institutions.
Government Failure
Government failure occurs when possible interventions are not analyzed before action is taken regarding market inadequacies.