ABSTRACT
In summing up the implications of the models presented so far, one final area must be discussed. If adverse selection does influence the labor market to any important extent, people must investigate the efficiency losses that it is likely to cause and the kinds of government policies which can reduce those losses. The seriousness of any inefficiency created by adverse selection depends on how important it is that labor be able to move freely between firms. This will depend first on how easily other factors may be transferred. If a single homogeneous kind of labor is immobilized by adverse selection but all other factors may move costlessly between firms, then there will be no efficiency losses. The existence of many different production activities within a single firm increases the opportunities for factor redeployment and, therefore, in this respect size and product diversity promote economic efficiency.
