Study on Asymmetric Information

There is frequent confusion about the terms asymmetric information, moral hazard, and adverse selection.  Asymmetric information is the cause, while moral hazard and adverse selection are the outcome.  Your focus will be to think through what these have to do with hiring a police officer.

Consider the following statement:

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Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material.

Address the following:

Why don’t police departments increase their applicant pool by dropping this requirement?

– How does this relate to asymmetric information, moral hazard, and adverse selection?

– How do Type I and Type II errors (and the human tendency to be risk-averse) relate to your answer?

Do not rely on Wikipedia, Investopedia, or any similar website as a reference or supporting source.

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