Signals Can Help Prevent Adverse Selection as Long as a False

question 38

True/False

Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.

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Definitions:

S Corporation

A special designation for a corporation that allows income, losses, deductions, and credits to be passed through to shareholders for tax purposes.

Dual Purpose Corporation

A business entity designed to operate for both profit and to achieve a social or charitable goal.

General Partnership

A partnership in which the partners divide profits and management responsibility and share unlimited personal liability for the partnership’s debts.

Business Losses

Business losses are the negative financial impacts a business suffers, often reflected in its financial statements as expenses exceeding revenues.