General Setup[]

Has two different meanings. In most of the cases adverse refers to the theory of lemons with a "harmful" effect to the market. Second one is the "positive" incentives based adverse selection, where certain setup of requirenments allows to pick out appropriate candidates.

"Harmful" Adverse selection[]

Adverse selectionanti-selection, or negative selection is a term used in economics, insurance, risk management, and statistics. It refers to a market process in which undesired results occur when buyers and sellers have asymmetric information (access to different information); the "bad" customers are more likely to apply for the service. For example, a bank that sets one price for all of its checking account (current account) customers runs the risk of being adversely selected against by its low-balance, high-activity (and hence least profitable) customers. Two ways to model adverse selection are to employ signaling games and screening games. (wikipedia)

Incentives based adverse selection approach[]

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