Focus on asymmetric information, moral hazard, and adverse selection. Sometimes there can be confusion as to these terms' meanings and connections. To prepare for the discussion, watch the following videos:

• Asymmetric Information and Used CarsLinks to an external site..
• Moral HazardLinks to an external site..

Additionally, review the following:

George Akerlof shook much of the economic world and won the Nobel Prize for asking: What if everybody who is a party to an economic transaction doesn't have the same information?

You may remember one of the basic assumptions of competitive markets is that buyers and sellers have perfect and identical information. There is a similar assumption for imperfectly competitive markets that information can be obtained at little or no cost. For a huge number of markets, neither of these is even close to true. When information is not the same on both sides of the marketor when it is very hard or costly for the unknowing party to gain parity of informationwe are likely to find market failure called "adverse selection" or "moral hazard."

Your instructor may also post additional resources to help further explain concepts related to this week's discussion.

Context

For this discussion, your focus will be on what asymmetric information, moral hazard, and adverse selection have to do with corporate hiring staff accountants.

Also, see the help provided in the discussion preparation.

Instructions

Consider the following statement:

• Many corporations require all staff accountants to hold not only a degree in accounting but also to have a CPA license. There is a substantially higher cost to hiring CPAs.

Post a Response

In your discussion post, address the following:

1. Speculate on why corporations do not lower their explicit payroll cost by hiring accountants without a CPA. Consider how asymmetric information, moral hazard, and adverse selection may impact the perception of risk.