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Genesis of market failure of adverse-selection-type in problem of effective capital allocation

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  • Sokolovska, Olena
  • Sokolovskyi, Dmytro

Abstract

The paper investigates the problem of possibility of investment allocation by economies according to adverse pattern, which can ultimately imply the rise of situation of market failure. We consider the transformation of “ideal” capital allocation into allocation of adverse-selection-type, which occurs as a result of migration of agents of different types. We conclude that the uncontrolled agents’ behavior, due to their bounded rationality, can lead to adverse selection state, when the less effective agents are investors in economies with most favorable investment climate, and vice versa.

Suggested Citation

  • Sokolovska, Olena & Sokolovskyi, Dmytro, 2012. "Genesis of market failure of adverse-selection-type in problem of effective capital allocation," MPRA Paper 41868, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:41868
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    References listed on IDEAS

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    More about this item

    Keywords

    capital allocation; adverse selection; market failure; behavior of agents; maximizes; satisfiers;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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