Issues and Types of Adverse Selection and Negative Selection

Csorba, László (2019) Issues and Types of Adverse Selection and Negative Selection. FINANCIAL AND ECONOMIC REVIEW, 18 (2). pp. 87-116. ISSN 2415-9271 (print); 2415-928X (online)

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Abstract

In a relatively high number of cases, there are selection criteria in everyday life, the implementation of which clearly does not support the development of the economy, even in the short term. At the same time, the phenomenon of adverse selection raises its head relatively rarely in reality, since it is equally dependent on the preconditions of a high degree of hidden information and the complete good faith of the stakeholders. In comparison, negative selection is – by necessity – a more frequent case. In such cases, the relevant information is available to the parties. At the same time, the individual or group possessing the information consciously abuses their dominant position. Moreover, this specifically disadvantages those who currently best comply with the existing selection requirements, but in spite of this are vulnerable due to the lack of a proper negotiating position or interestasserting capability. However, the dominant position or power possessed by the relevant party can also be used “according to its intended purpose”, which enables the implementation of positive selection that is very likely to promote development.

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