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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.

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Most popular questions from this chapter

Refer to Problem 22. Now you believe the dealer knows more about the car than you do. How much are you willing to pay? Why? How can this asymmetric information problem be resolved in a competitive market?

You wish to hire Ron to manage your Dallas operations. The profits from the operations depend partially on how hard Ron works, as follows

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In December 2001, Argentina announced it would not honor its sovereign (government-issued) debt. Many investors were left holding Argentinean bonds priced at a fraction of their previous value. A few years later, Argentina announced it would pay back 25% of the face value of its debt. Comment on the effects of information asymmetries on government bond markets. Do you think investors are currently willing to buy bonds issued by the government of Argentina?

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