In the adverse selection model, describe the pooling equilibrium and explain why it is not efficient

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In the adverse selection model, describe the pooling equilibrium and explain why it is not efficient

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Answer 1

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Pooling equilibrium in adverse selection theory arises as results of signaling game in which players send signals privately best known to them.

Some players try to imitate the strategy as they have no incentive to differentiate themselves and hence results in making any one player better off or worse off. This situation hence becomes ineffective and inefficient due to change in equilibrium .

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In the adverse selection model, describe the pooling equilibrium and explain why it is not efficient

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In the adverse selection model, describe the pooling equilibrium and explain why it is not efficient

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In the adverse selection model, describe the pooling equilibrium and explain why it is not efficient