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Incomplete Contracts and Asymmetric Information as a Source of Externalities
External effects can be analyzed as a consequence of incomplete contracts, which often arise from asymmetric information. When one party in an exchange possesses more information than the other, it becomes difficult or impossible to create a contract that covers every contingency, such as the quality or effort of a service. This contractual gap allows one party's actions to create uncompensated costs or benefits for the other, leading to an externality.
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Economics
Economy
CORE Econ
Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
Introduction to Microeconomics Course
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