Precontractual informational asymmetries that generate contracting costs can lead to
A)bargaining failures and adverse selection.
B)implicit contracts and reputational concerns.
C)explicit contracts and credibility issues.
D)perquisite taking and differential risk exposure.

Question

Quizplus · Accepted Answer

Precontractual informational asymmetries refer to situations in which one party has more information relevant to the contract than the other party. This can lead to bargaining failures, where the parties are unable to come to an agreement, and adverse selection, where the party with less information is more likely to select a contract that is less favorable to them. Both of these outcomes can result in higher contracting costs, as parties may need to invest more resources in negotiating a mutually beneficial agreement or protecting themselves from the risks associated with incomplete or asymmetric information.

Precontractual Informational Asymmetries That Generate Contracting Costs Can Lead to