Professor Ambec starts part 3 by reminding us that low cost firms have incentives to mimic high cost firms and foul regulators when there is asymmetric information. He also shows mathematically how to deal with asymmetric information and the “regulator’s maximization program under adverse selection”.
He also illustrates this with graphs, showing the indifference curves of the different agents.
At the end Ambec provides a nice summary of the lecture.
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