Author Question: How does asymmetric information affect a contract?[br][br][b][color=#7BCCB5]Question ... (Read 63 times)

debasdf · **on:** Jun 30, 2018

How does asymmetric information affect a contract?

Question 2

Without contracts, what type of transactions would occur?
A) forward purchases.
B) lateral purchases.
C) spot transactions.
D) side bars.

mammy1697 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

If one party to an agreement holds information that the other does not, the difference can affect both of their incentives and behaviors. Due to the problem of asymmetric information the economic value a contract could potentially create may be diminished if the uninformed party cannot easily learn or verify important information, or if the informed party cannot credibly convey it.

Answer to Question 2

C