Explain two ways a government might respond to the existence of asymmetric information in a market.

Using real-world examples, evaluate different approaches to managing common access resources.

Answers may include:

• Definition: asymmetric information.
• Explanation: of adverse selection, moral hazard, and government responses such as regulation, legislation or the provision of information.
• Diagram: not needed for this question

Answers may include:

• Definition: common access resources.
• Explanation: of different government approaches to this problem, legislation and regulation, collective self-governance, tradable permits, carbon taxes and international agreements.
• Diagram: showing negative production externalities.
• Synthesis (evaluate): the strengths and limitations of the above policies in addressing the problems of managing common access resources.
• Examples: a real-world common access resource and policies used by governments eg Antarctic Treaty System, Nile Agreement etc.

N.B. It should be noted that definitions, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.