ABSTRACT
Chapter 8 discusses how adverse selection with asymmetric information can obstruct cooperation. It also discusses the market and non-market mechanisms that resolve adverse selection. Brand names are a type of reputation mechanism that is important for the realization of valuable cooperation. They are the most important component of the market system. There is good reason for government regulation as a form of non-market institution to resolve adverse selection, but in many cases it not only is ineffective, but can instead seriously damage the market’s reputation mechanism.
