Welcome to this Module 4 aabout "Asymmetric information about quality." My name is Luisa Menapace and I am Professor for Governance in International Agribusiness at the Technical University of Munich. This module is divided into 2 lessons. In the 1st lesson we are going to talk about asymmetric information and market failure. In the 2nd lesson, we will discuss product attributes and their classification. Let's start with lesson 1. After completing this lesson you will be able to explain the concepts of asymmetric information, adverse selection, moral hazard and market failure. Ultimately, you will be able to explain the role of information for the functioning of a market. Asymmetric information (as suggested by the name) is a situation in which buyers and sellers do not have the same amount of information. One party of a transaction has more information than the other. Which party, buyers or sellers, has more information depends on the market and on the product. In this lesson, we will focus on the case in which the buyer has less information than the seller. An example, in the agro-food sector context, is when greengrocer knows more about the quality of the fruit he sells than we as buyers, do. In this example, the seller has more information than the buyer. The problem with asymmetric information is that it can lead to opportunistic behavior. This means that asymmetric information allows one party in the transaction to "exploit" the other party by taking advantage of the other parties lack of information. We can distinguish two forms of opportunistic behaviors. These are called: adverse selection and moral hazard. These two forms of opportunistic behavior correspond to two forms of asymmetric (or hidden) information. Adverse selection is also known as "hidden type" problem. With adverse selection, the hidden information concerns the type or rather the "quality" of a product that is placed on the market. With adverse selection, a producer of low quality product is more likely to join the market when the buyer is not able to ascertain the quality of the product. Moral hazard is also known as a "hidden actions" problem. With moral hazard, the hidden information concerns the producer's actions that determine the quality of product that is placed on the market. With moral hazard, a producer (a seller) is more likely to choose to produce bad quality when the buyer is not able to ascertain the quality of the product. In what follows, I will discuss in more details the adverse selection and moral hazard problems starting from adverse selection.