Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 8: Q.16 (page 236)

Which problem of asymmetric information are prospective employers trying to solve when they ask applicants to go through a job interview. Is that the end of the information asymmetry?

Short Answer

Expert verified

Employers are using job interviews to try to overcome the problem of adverse selection. It mitigates the asymmetric information problem, but not completely eliminates it, because the moral hazard problem arises after the selection or appointment.

Step by step solution

01

Content Introduction

Asymmetric information refers to information that is not the same, therefore inconsistency occurs when there is a difference in the information offered to people that is not the actual information.

02

Content Explanation

Employers are using job interviews to try to overcome the problem of adverse selection. It mitigates the asymmetric information problem, but not completely eliminates it, because the moral hazard problem arises after the selection or appointment. A job interview allows a company to learn everything there is to know about a potential employee. As a result, the problem of information asymmetry is alleviated.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Many policymakers in developing countries have proposed the implementation of a system of deposit insurance similar to the system that exists in the United States. Explain why this might create more problems than solutions in the financial system of a developing country.

What steps can the government take to reduce asymmetric information problems and help the financial system function more smoothly and efficiently?

How can the existence of asymmetric information provide a rationale for government regulation of financial markets?

Which relationship would you expect to exist between measures of corruption and living standards at the country level? Explain by which channel corruption might affect living standards.

Go to the St. Louis Federal Reserve FRED database and find data on net worth of households (TNWBSHNO) and the net percentage of domestic banks tightening standards for auto loans (STDSAUTO). Adjust the units setting for the net worth indicator to “Percent Change from Year Ago,” and download the data into a spreadsheet.

a. Calculate the average, over the most recent four quarters and the four quarters prior to that, for the bank standards indicator and the “percent change in net worth” indicator. Do these averages behave as you would expect?

b. Use the Data Analysis tool in Excel to calculate the correlation coefficient for the two data series from 2011:Q2 to the most recent quarter of data available. What can you conclude about the relationship between the net worth of households and bank auto lending standards? Is this result consistent with efforts to reduce asymmetric information?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free