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What is Adverse Selection

Chapter 4
Examining the Vital Financial Role of SMEs in Achieving the Sustainable Development Goals
In financial markets, adverse selection refers to a situation wherein one party in a potential transaction uses some extra information the other part does not have such that the transaction likely favors the former.
Published in Chapter:
How Can Small and Medium Enterprises in the Chinese Market Achieve Sustainable Development Goals Through Blockchain?
Poshan Yu (Soochow University, China & European Business Institute, Luxembourg & Australian Studies Centre of Shanghai University, China), Yao Ge (Independent Researcher, Suzhou, China), Kudzai Mandizvidza (Independent Researcher, Beijing, China), and James Mulli (European Business Institute, Luxembourg)
Copyright: © 2023 |Pages: 34
DOI: 10.4018/978-1-6684-4834-2.ch004
Abstract
Blockchain is one of the most important innovative technologies developed in recent years. It has great potential and capacity to help SMEs prosper due to its decentralized public ledger, which provides a secure infrastructure for transactions between unfamiliar parties without any major influence from a central authority. The use of a decentralized public ledger also makes it possible for SMEs to get credit more easily, thus assisting them in achieving sustainable development. This chapter gives an overview of the functions and applications of blockchain, the situation of SMEs in the Chinese market, and sheds some light on how the Chinese policies on blockchain may affect SMEs. The chapter uses the case of WeBank to show how blockchain technology can accelerate the development of SMEs.
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Chapter 166
Microeconomic Aspects of E-Commerce
A situation arising in contexts of asymmetric information in which one party knows more about the quality of a good than the other. In the context of trading a good, adverse selection from the inability to verify the quality of a good results in the “lemons problem” of only low quality products being offered for sale.
Published in Chapter: Microeconomic Aspects of E-Commerce; From: Encyclopedia of E-Commerce Development, Implementation, and Management
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Chapter 8
FinTech and Stock Market Behaviors: The Case of Borsa Istanbul
Adverse selection is a problem created by asymmetric information. When sellers and buyers do not have same information level before the transaction in the market, the adverse selection problem arises.
Published in Chapter: FinTech and Stock Market Behaviors: The Case of Borsa Istanbul; From: FinTech as a Disruptive Technology for Financial Institutions
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Chapter 23
Economic Incentives and the Knowledge Economy
Concerns the problem of hidden information that can adversely affect the efficiency of a market, such as in insurance where unhealthy people are more likely to seek health insurance.
Published in Chapter: Economic Incentives and the Knowledge Economy; From: Encyclopedia of Knowledge Management, Second Edition
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Chapter 3
Predicting Global Financial Meltdown and Systemic Banking Failure: An Assessment of Early Warning Systems (EWSs) and Their Current Relevance
Is a manifestation of the problem of asymmetric information , c aused by prohibitive barriers to market entry and by asset opacity, wherein those players in a financial system who are most likely to produce undesirable or adverse credit-risk outcomes are also the actors who not only seek out credit and other financial services most actively, but whose propositions and proposals are also the most likely to get selected and backed financially.
Published in Chapter: Predicting Global Financial Meltdown and Systemic Banking Failure: An Assessment of Early Warning Systems (EWSs) and Their Current Relevance; From: Handbook of Research on Financial and Banking Crisis Prediction through Early Warning Systems
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Chapter 12
Joint Liability Lending, Entrepreneurial Development, and Poverty Reduction
It is a risk exposure that exists before the money is lent to group members. It occurs when bad credit risks become more probable to acquire loans than good credit risks. Because of information asymmetry, lenders tend to have a hard time differentiating between good credit risks and bad credit risks. As a result, lenders end up with a loan portfolio comprising almost entirely of bad credit risks.
Published in Chapter: Joint Liability Lending, Entrepreneurial Development, and Poverty Reduction; From: Handbook of Research on Digital Marketing Innovations in Social Entrepreneurship and Solidarity Economics
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Chapter 47
Knowledge and Intellectual Property Rights: An Economics Perspective
Concerns the problem of hidden information that can adversely affect the efficiency of a market, such as in insurance where unhealthy people are more likely to seek health insurance.
Published in Chapter: Knowledge and Intellectual Property Rights: An Economics Perspective; From: Encyclopedia of Knowledge Management, Second Edition
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Chapter 5
The Economics of Health: An Overview of the American Healthcare System
A situation where asymmetric information leads to a change in one’s behavior. In insurance markets, adverse selection is exhibited when unhealthy individuals pursue more extensive health insurance than healthy individuals.
Published in Chapter: The Economics of Health: An Overview of the American Healthcare System; From: Evaluating Challenges and Opportunities for Healthcare Reform
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Chapter 599
Financing Micro, Small, and Medium Enterprises in Indian Industry
The concept of adverse selection applies to a case where the bad customers apply for the service because they have better information about how much benefit can be extracted from the service.
Published in Chapter: Financing Micro, Small, and Medium Enterprises in Indian Industry; From: Encyclopedia of Information Science and Technology, Fourth Edition
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Chapter 119
Online P2P Lending: Factors, Behaviors, and Mechanisms
The phenomenon that bad quality product drives out good quality product.
Published in Chapter: Online P2P Lending: Factors, Behaviors, and Mechanisms; From: Encyclopedia of E-Commerce Development, Implementation, and Management
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Chapter 87
The Role of Information in Decision Making
Adverse selection concerns the problem of hidden information that can adversely affect the efficiency of a market, such as in insurance where unhealthy people are more likely to seek health insurance.
Published in Chapter: The Role of Information in Decision Making; From: Encyclopedia of Decision Making and Decision Support Technologies
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Chapter 15
Joint Liability Lending, Entrepreneurial Development, and Poverty Reduction
A risk exposure that exists before the money is lent to group members. It occurs when bad credit risks become more probable to acquire loans than good credit risks. Because of information asymmetry, lenders tend to have a hard time differentiating between good credit risks and bad credit risks. As a result, lenders end up with a loan portfolio comprising almost entirely of bad credit risks.
Published in Chapter: Joint Liability Lending, Entrepreneurial Development, and Poverty Reduction; From: Handbook of Research on Social Entrepreneurship and Solidarity Economics
Full Text Chapter Download: US $37.50 Add to Cart
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