ABSTRACT
This chapter introduces information asymmetry, describes its relative prevalence, and determine its consequences, especially for insurance markets. It suggests that adverse selection in insurance is only one consequence of asymmetric information. The chapter looks at the special and controversial case of supplier-induced demand as an asymmetric information/agency problem. It examines the effects of imperfect consumer information on the price and quality of health care services and identifies arrangements that commonly evolve to reduce the disadvantages for the less well-informed parties. The markets for many health care services and for insurance in particular exhibit significant degrees of asymmetric information and agency relationships. Certainly information gaps and asymmetries exist in the health sector. The chapter examines some of that work, including contributions by health economists to the specific problems of the health sector. It addresses the answer for some questions: Will a state of relative consumer ignorance preclude high levels of competition?
