Swan Lake runs a website where individuals and firms sell used cars. The cars are presented with a picture and a short description. a) Adverse selection is a potential problem for Swan Lake. Explain the concept of adverse selection and explain why it could create problems for the functioning of the market on Swan Lake. b) The management at Swan Lake discuss how to design the website. Briefly discuss why the following measures would affect the extent of problems caused by asymmetric information. - cars are evaluated by an independent mechanic and the review is posted on the website - the car is posted on the website only after the seller has turned over the keys to Swan Lake - buyers can give feedback on sellers that is visible for future customers. c) One person in the Swan Lake management worries that the independent checks suggested in b) raise the cost of selling a car. She says "We're gonna loose a ton of business because of this". Comment from a perspective of asymmetric information. d) Swan Lake consider bringing in an external consultant to redesign the website. Swan Lake believe that the work will take 100 hours but realize that it is hard to know in advance. One model for remuneration ("fixed") is that the consultant receives 400 000 kronor irrespective of how long she works. Another model for remuneration ("hourly") is that the consultant charges 4 000 kronor per hour. Explain the concept moral hazard and discuss whether considerations related to moral hazard should affect how remuneration is done. e) Use the information in d) and assume that Swan Lake chooses between two consultants that are equally honest and skilled. One has many other clients at this time whereas the other has plenty of time. Does this affect the model for remuneration that should be offered to the respective consultants? Discuss. Swan Lake runs a website where individuals and firms sell used cars. The cars are presented with a picture and a short description. a) Adverse selection is a potential problem for Swan Lake. Explain the concept of adverse selection and explain why it could create problems for the functioning of the market on Swan Lake. b) The management at Swan Lake discuss how to design the website. Briefly discuss why the following measures would affect the extent of problems caused by asymmetric information. - cars are evaluated by an independent mechanic and the review is posted on the website - the car is posted on the website only after the seller has turned over the keys to Swan Lake - buyers can give feedback on sellers that is visible for future customers. c) One person in the Swan Lake management worries that the independent checks suggested in b) raise the cost of selling a car. She says "We're gonna loose a ton of business because of this". Comment from a perspective of asymmetric information. d) Swan Lake consider bringing in an external consultant to redesign the website. Swan Lake believe that the work will take 100 hours but realize that it is hard to know in advance. One model for remuneration ("fixed") is that the consultant receives 400 000 kronor irrespective of how long she works. Another model for remuneration ("hourly") is that the consultant charges 4 000 kronor per hour. Explain the concept moral hazard and discuss whether considerations related to moral hazard should affect how remuneration is done. e) Use the information in d) and assume that Swan Lake chooses between two consultants that are equally honest and skilled. One has many other clients at this time whereas the other has plenty of time. Does this affect the model for remuneration that should be offered to the respective consultants? Discuss