Re:Basic Income: Unintended Consequences
by icebraining on Monday February 15, 2016 @07:59PM
(#11107242)
Adverse selection happens when the borrower knows more than the loaner, no? Why would that happen here? Banks and other credit institutions already force you to prove that you have assets and/or income; here they would do the exact same thing, just disregarding the BI.
[ Parent
| on HN ]
Ah, you are correct. The term I was actually looking for is moral hazard.
The reason why banks require evidence of ability to repay the loan is because, without them, there would be a huge incentive for borrowers to take loans without paying them back. This is where the adverse selection comes in - the information asymmetry results from the borrowers knowing what their intent for the loan is and the incentive to mislead the lender. This leads to lenders being more wary (and implementing requirements) when issuing loans.