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During the post-crisis, financial markets are characterized by differences in information between buyers and sellers. Financial markets, information asymmetries are particularly pronounced. Borrowers typically know their guarantees, diligence, and moral rectitude better than creditors; entrepreneurs have information "inside" on their projects requesting funding. Creditors could benefit from knowing the true characteristics of borrowers. But moral hazard prevents the direct transfer of information between market participants. Debtors cannot be expected to be fully directly on their characteristics or entrepreneurs about their projects, as there may be substantial rewards for exaggerating positive qualities. |
