Question: Consider the following adverse selection problem. There are a large numbers of entrepreneurs each endowed with a project. Projects can be of two types: high

Consider the following adverse selection problem. There are a large numbers of entrepreneurs each endowed with a project. Projects can be of two types: high or low value. High value projects are worth to external investors and with ,to the entrepreneur.Low quality projects are worth and with ,to the entrepreneur.Low quality projects are worth , with to , with to investors and zero to the entrepreneur. Let denote the share of high quality projects in the population. Consider a market where entrepreneurs, who know the type of their project, can sell them to uninformed external investors. Which of the following statements is false?

a.Entrepreneurs endowed with low value projects make (weakly) higher profits by selling on the market than those endowed with high value projects.

b.If the type of their project, can sell them to uninformed external investors. then high quality projects are not traded on the market.

c.Low quality projects are always traded when high quality projects are traded, but the reverse is not necessarily true.

d.Low quality projects are only traded if high quality projects are also traded

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