are purchasing, then they will be reluctant or unwilling to purchase the products. Thus, we require

mechanisms to bridge this information gap, so buyers and sellers can engage in a transaction.

The second module of the chapter discusses insurance markets, which also face similar problems of imperfect

information. For example, a car insurance company would prefer to sell insurance only to those who are

unlikely to have auto accidents—but it is hard for the firm to identify those perfectly safe drivers. Conversely,

car insurance buyers would like to persuade the auto insurance company that they are safe drivers and should

pay only a low price for coverage. If insurance markets cannot find ways to grapple with these problems of

imperfect information, then even people who have low or average risks of making claims may not be able to

purchase insurance. The chapter on financial markets (markets for stocks and bonds) will show that the
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