Monday, September 12, 2016

Adverse Selection, the ACA, and Criminal Records

The Economist Magazine is devoting space to explaining some fundamental economic ideas.  They begin with information asymmetry, which leads to adverse selection, the topic of chapter 19.

Information asymmetry remains a tricky problem for policymakers. Adverse selection is plaguing America’s Affordable Care Act, better known as “Obamacare”. Fewer healthy people than expected have signed up to the government-sponsored insurance exchanges, which limit how much premiums can vary with risk. Insurers are making losses; as a result, they are raising prices substantially (or pulling out altogether). Critics say those price rises will drive away more healthy customers, leading to a “death spiral”. Information economics should also give pause to the “ban the box” campaign, which seeks to forbid employers from asking about job-applicants’ criminal records prior to interview. Having no criminal record is a positive signal; removing that information makes information asymmetry worse. Recent research suggests that banning the box causes American firms to discriminate by race, such that employment of low-skilled black and Hispanic men falls. Adverse selection indeed.

1 comment:

  1. Adverse selection –
    IPhone most recently admitted and knowingly added iOS updates that affect and basically overload the phone causing the battery on the 5 series to become bombarded and actually shut down. (Spence, E) When talking about adverse selection and fitting the bill, Apple has found itself guilty of this profitable but unconsummated wealth- creating transaction. IPhone users of this particular model were obviously unaware of the current position they were in when they updated their phone to the assumed “necessary or required update” Apple has admitted the software does degrade the performance of older iPhone which has turned many of those unbeknown users towards a handset upgrade opportunity. In general wants to deal with unresponsive motherboards, depleted battery on a increased level and although lithium ion batteries do deplete overtime the update enhancements increase and enhance this process- By the way Apple charges $79 for a battery replacement (E. Spence)
    Basically the hidden information on Apple’s end has now caused the buyer to encounter a sunk cost fallacy, I have been a Samsung Galaxy user for years and find this new information will deter any consideration I may have had on their product. I would like to be in control of natural degraded process from the battery life and operation enhancements, not be forced to excel the process.


    E. Spence (December 20th 2017) Apple confirms it Degrades Your Old iPhone Performance Http:// Accessed on December 22, 2017
    Froeb, Luke M., et al. “3-14.” Managerial Economics a Problem Solving Approach, Cengage Learning, Boston, MA, 2016.