Adverse selection

The Green Book, Central Government Guidance On Appraisal And Evaluation, Published by HM Treasury in 2018, suggests that adverse selection may occur: ‘…where asymmetric information restricts the quality of a traded good. This typically happens because the side with more information can negotiate a more favourable exchange than would otherwise be the case.’

Glossary: Resilience, published by the Department for International Development in 2016, defines adverse selection as a situation in which: ‘…higher risk clients are more likely to purchase insurance, resulting in higher risk pool and higher premiums, pushing lower risk clients out of the market.’