Risk classification refers to the use of observable characteristics by insurers to group individuals with similar expected claims, compute the corresponding premiums, and thereby reduce asymmetric information. With perfect risk classification, premiums fully reflect the expected cost associated...

We discuss the difficult question of measuring the effects of asymmetric information problems on resource allocation. Three problems are examined: moral hazard, adverse selection, and asymmetric learning. One theoretical conclusion, drawn by many authors, is that information problems may...