COMMON ACCESS RESOURCES

my groups topic was common access resources which means that everyone is free to use them and anyone can use them. this may sound like it is beneficial, but only to a certain extent. my video was an interview between a man who cared about the environment and a rich woman who did not care about the environment. the woman was talking about the local fishing ground where people use to fish a lot and the population of the fish reduced by a lot and it caused a large drop in the revenue of the fishermen.
the overexploitation of the resource would lead to no fish left in the lake. the woman said that she only cares about herself and the best for her family but she didn't think about what would happen to the local fishermen who's income was fully based on the fish they used to catch and sell everyday.
one solution to this problem is legislation which means that there can be controls on the amount of fish caught by an individual to maintain balance and not overuse it or exploit it. 

Asymmetric Information- Adverse Selection

                                               Asymmetric Information- Adverse Selection               Arjun Kyal

A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Potentially, this could be a harmful situation because one party can take advantage of the other party's lack of knowledge.
This usually takes place when the buyer or the seller wants to take advantage of the other by conning them, because of a flaw in the product.

Adverse selection is a term used in economics that refers to a process in which undesired results occur when buyers and sellers have access to different/imperfect information. The uneven knowledge causes the price and quantity of goods or services in a market to shift. This results in "bad" products or services being selected. For example, if a bank set one price for all of its checking account customers it runs the risk of being adversely affected by its low-balance and high activity customers. The individual price would generate a low profit for the bank.

The term adverse selection first came up in the insurance market when customers would give insurance companies wrong information in order to pay less premiums.

An example of adverse selection
Tom had an old phone on which part of the touch screen was unresponsive. He wanted a new phone so he decided to sell his old one and use the money to buy a new phone. When he goes to sell it the shopkeeper asks him if there are any problems with the phone. He knows that if he says that there are, he will get less money for his phone as the price would shift down, so he lies and says that there are no problems, so the shopkeeper gives him a good, wrong price for the phone. He made a 'bad selection' by choosing to buy the phone.
Works Cited
Boundless. N.p., n.d. Web. <https://www.boundless.com/economics/textbooks/boundless-economics-textbook/challenges-to-efficient-outcomes-15/sources-of-inefficiency-83/asymmetric-information-adverse-selection-and-moral-hazard-318-12415/>.

"Asymmetric Information Definition | Investopedia." Investopedia. N.p., 19 Nov. 2003. Web. 11 Jan. 2016. <http://www.investopedia.com/terms/a/asymmetricinformation.asp>.

"Adverse Selection." Bluebirdofbitterness. N.p., n.d. Web. <http://bluebirdofbitterness.com/2013/10/25/you-have-to-sign-up-for-it-to-find-out-whats-in-it-2/>.

"Adverse Selection." Dutchhealthcare.wordpress. N.p., n.d. Web. <https://dutchhealthcare.wordpress.com/2011/01/26/adverse-selection/>.

Moral Hazard

Definition: Moral hazard is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. It arises when both the parties have incomplete information about each other.

Description: In a financial market, there is a risk that the borrower might engage in activities that are undesirable from the lender's point of view because they make him less likely to pay back a loan.

It occurs when the borrower knows that someone else will pay for the mistake he makes. This in turn gives him the incentive to act in a riskier way. This economic concept is known as moral hazard.

Example: You have not insured your house from any future damages. It implies that a loss will be completely borne by you at the time of a mishappening like fire or burglary. Hence you will show extra care and attentiveness. You will install high tech burglar alarms and hire watchmen to avoid any unforeseen event.

But if your house is insured for its full value, then if anything happens you do not really lose anything. Therefore, you have less incentive to protect against any mishappening. In this case, the insurance firm bears the losses and the problem of moral hazard arises.

SOLUTIONS TO MORAL HAZARDS

CITATIONShttp://economictimes.indiatimes.com/definition/moral-hazard---- Accessed on 11th January 7:40pm

http://vipermocca.blogspot.in/2013/12/moral-hazard-and-adverse-selection.html---- Accessed on 11th January 7:45pm

https://www.youtube.com/watch?v=5v7TWKlYoN0---- VIDEO 1

https://www.youtube.com/watch?v=6faL76QZ2AA---- VIDEO 2

Common Access Resources - Australian Abalone

Common Access Resources are non-excludable and rivalrous in nature. A very common example of common access resources is fish. Because everyone has access to fish and everyone has the right to fish for free, a problem of over exploitation occurs. This is when a resources is consumed beyond the maximum sustainable yield, which implies that the rate of extraction does not allow for the resource to replenish in stock (Common Access Resources & Sustainability).

Australia was facing a problem with over fishing of Abalone. Since abalone is a common access resource, it became prone to over-exploitation. After recognizing this trend of unsustainable yields, the government decided to solve the problem by implementing various regulations that aim to reduce and limit the amount of abalone fishing that takes place in Australia. Examples of these solutions include limiting the regions in which abalone fishing is permitted, placing bag limits on the number of abalones that can be fished, establishing a minimum size requirement, and implementing a licensing system to limit the number of legal abalone fishers (Abalone Recreational Fishing).



However these regulations' effectiveness is debatable. Placing these restrictions has given birth to an illegal abalone market. The market primarily exists due to the limit placed on the number of abalone diving licenses (Tailby and Gant).

Common access resources are goods that are available to all and have substitutes, it is because of their non-restrictive availability, that  over-exploitation of the resource may occur. Fishing is a classic example of CARs in which the maximum sustainable yield is often exceeded. This is evident in the abalone species in Australia. Although the Autralian government has established regulations to prevent unsustainable fishing, the regulations have led to the creation of the "black market".

Work Cited -

"Abalone Recreational Fishing." Department of Fisheries Western Australia. Government of Western Australia, 30 Oct. 2015. Web. 9 Jan. 2016.

"Common Access Resources & Sustainability." South Island School Hong Kong. Triple A Learning, n.d. Web. 9 Jan. 2016. 

Tailby, Rebecca, and Frances Gant. The Illegal Market in Australian Abalone. Canberra, A.C.T.: Australian Institute of Criminology, 2002. Australian Institute of Criminology. Australian Institute of Criminology, 23 Nov. 2015. Web. 09 Jan. 2016. 

Adverse Selection - Asymmetric Information

- Siddhant Dutta


Asymmetric information in economics refers to a phenomenon when in a transaction, one party has better or more information than the other. This leads to a series of bad decisions, which in turn results in market failure due to misallocation of resources. There are various types of asymmetric information, namely adverse selection, moral hazards etc. Adverse selection is a situation in which sellers have more information than buyers (or vice versa).

A classic example of adverse selection can be seen in the case of health and life insurances. Let us consider the relationship between drinking and mortality. It is known that non-alcoholics typically live longer than smokers. If the insurance company doesn't vary prices according to drinking status, its schemes will be more profitable to alcoholics as they are more susceptible to diseases. Alcoholics will have greater incentives to buy insurance from that particular company and purchase insurance from the companies in larger amounts than non-alcoholics. The average mortality rate increases, leading to losses for the company.

In response, the company may increase premiums. However, higher prices causes responsible non-alcoholic customers to cancel their insurance, which can exacerbate the adverse selection problem and lead to a collapse in the insurance market. 

To counter the effects of adverse selection, insurers must offer insurance premiums that are proportional to the customer's risk of accident. The insurer must screen and distinguish high-risk individuals from low risk individuals. Medical insurers for instance, ask a range of questions and may request medical reports for individuals who apply to buy insurance, so that the premium can be varied accordingly, and any unreasonably high or unpredictable risks rejected all together. In many countries, law incorporates an "utmost good faith", which requires potential sutures to answer any underwriting questions asked by the insurer fully and honestly. Dishonesty may be met with refusals to pay claims.

Cases of adverse selection happen in other markets as well, especially in online markets. For example multiple cases have been reported in which buyers selling phoney gadgets on online sites such as e-bay and olx, at low prices, attracted customers lacking knowledge of the reality and making the purchases. They ended up receiving fake gadgets which would spoil in a matter of days. They were tricked into making the purchases due to asymmetric information. This leads to a misallocation of resources and finally results in market failure.

Citations:

"Adverse Selection Examples - What Is Adverse Selection and How Can It Affect Your Projects?" Brighthub Project Management. N.p., n.d. Web. 10 Jan. 2016

"Adverse Selection Definition | Investopedia." Investopedia. N.p., 18 Nov. 2003. Web. 10 Jan. 2016.

Video Link: http://www.investopedia.com/terms/a/adverseselection.asp?layout=orig

moral hazards - mishaal kirpalani

Moral Hazards

By Mishaal Kirpalani

Asymmetric information

This is when one party does not have as much information about the product as the other. This leads to a kind of market failure.

Examples

·      Buyer has more information than the seller

In health insurance, the buyer knows how bad or good his health actually is while the insurance company knows only a limited mount of information from the buyer’s medical reports

·      The seller has more information that the buyer

In real estate businesses the seller has a lot more information about the property he is selling but he would like to sell it for a high value and therefor will withhold valuable information from the buyers. Information like neighbourhood criminal activities or the structural integrity of the building.

Moral hazards

Moral hazards occur because of asymmetric information. This is when a buyer or seller changes their behaviour after the purchase of the product. This is also he principal agent problem

Examples

·      When the buyer changes behaviour

Taking the previous example of insurance, we can see that the buyer knows his own bad or good habits. After successfully purchasing insurance, the buyer will or can change his/her behaviour because he knows that he is insured

·      When the seller changes behaviour

When a person buys a second hand car and the deal is made and the delivery date is set, the seller would drive his/her car recklessly as it is not their property anymore and they do not have to pay for damages

Solutions

·      Private insurance companies charge higher insurance rates just in case their buyers behaviour changes. The also have ‘out of pocket payments’ where the buyer must pay some money as well when claiming his/her insurance. This ‘out of pocket payment’ acts as an incentive for people to not be reckless.

·      Information through government or other sources also helps as the buyer is more aware of what he/she is buying

·      Incentive also works as a solution. An office worker who is hired can change his work habits after being hired and his employer cannot know what he is doing at all times. However, if he is paid well, he will work his best not to lose his job.

Citations

http://www.econport.org/content/handbook/Imperfect-Information/asymmetric.html

http://www.econport.org/content/handbook/Unemployment/Comparing/MoralHazard.html

sustainablility

The International Economy, the Environment, and Development

The two conditions to consider are the global economy and sustainability of the environment, balance must be maintained between the two to avoid dominance of any of the two.

Concentrating too much on the economy and overlooking the environment will cause irreversible destruction, whereas focusing on the environment and overlooking the economy will create losses for companies.

Nations all over the world are merging and forming links between the environment and economy; each country creates policies to create balance, and these policies affect other nations as well, therefore international organizations directly affect each other. Sustainability helps achieve economic goals while preserving resources for future generations. The picture above shows that (2) the economy is a small fraction of human society; our way of creating and exchanging goods and services to aid people meet their needs. Human society is therefore, a fraction of the environment, and we rely on that environment for some of the most basic needs of our lives

However, this is a problem for developing countries as it is not affordable and they need to focus more on increasing their income rather than utilizing their budget on schemes like these. (1)Growth in developing countries means external capital inflows. If there is no flow,  there will be no progress in living standards. Hence, the poor will have no option left but to exploit the environment for their own well-being. Long-term development is difficult. Net resource flows to developing countries have fallen in real terms; in aggregate, there is now actually an outflow. 

The Kyoto protocol was an attempt to bring about a change by reducing the percentage of greenhouse gases in the atmosphere to stop depletion of the ozone layer, and many countries signed up which helped, but not in the long run.

This video shows the relation between the economy and the environment- https://www.youtube.com/watch?v=O5lBwrJcUOk

citations 

(1)"Our Common Future, Chapter 3: The Role of the International Economy - A/42/427 Annex, Chapter 3 - UN Documents: Gathering a Body of Global Agreements." Our Common Future, Chapter 3: The Role of the International Economy - A/42/427 Annex, Chapter 3 - UN Documents: Gathering a Body of Global Agreements. N.p., n.d. Web. 10 Jan. 2016.

(2)"Economics as an Enabler of Sustainability." Economics as an Enabler of Sustainability. N.p., n.d. Web. 10 Jan. 2016.