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Market for Freelance Contractors
Imagine a new online platform is created for homeowners to hire freelance contractors for home repair projects. Homeowners can post a job, and contractors can bid on it. The homeowner can only see the contractor's stated experience and their bid price before making a hiring decision. Analyze this market structure. What key characteristic is likely to be known by the contractor but not the homeowner? Explain how this information imbalance could affect the quality of contractors who choose to participate on the platform and the prices homeowners are willing to pay.
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Economics
Economy
The Economy 2.0 Microeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Introduction to Microeconomics Course
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
Adverse Selection (Hidden Attributes Problem)
Information Asymmetry in the Labor Market
A company that provides home internet service cannot observe how its customers will use the connection after signing a contract. In contrast, a person selling their custom-built computer to a buyer online knows about a subtle, intermittent hardware flaw that the buyer cannot detect through the online listing. Which of these two scenarios contains a 'hidden attribute' problem?
Health Insurance and Hidden Information
For each economic scenario presented, match it with the specific 'hidden attribute' that creates an information imbalance between the parties.
Market for Freelance Contractors
Viability of Private Unemployment Insurance
A company is hiring a software developer. One candidate has deep, specialized knowledge of a rare programming language from a previous confidential project, which makes them exceptionally productive for a specific task the company needs. However, this expertise is not verifiable through their public resume or a standard technical interview. The hiring manager, unaware of this specific skill, can only observe the candidate's general experience. In this scenario, what is the 'hidden attribute'?
An art gallery is selling a painting they believe to be an original masterpiece. A potential buyer, using private, advanced technology not available to the seller, discovers the painting is a forgery. This situation is an example of a market problem caused by a hidden attribute.
A person is selling their used laptop online. They are aware that the battery's capacity has significantly diminished and it now only holds a charge for about one hour, a fact not mentioned in the online listing. A potential buyer, seeing the advertisement, assumes the battery is in average condition for a laptop of its age. In this scenario, which of the following is the 'hidden attribute'?
Financial Product Information Imbalance