▁law ▁or ▁other ▁constraints . ▁An ▁example ▁of ▁moral ▁ha z ard ▁is ▁when ▁people ▁are ▁more ▁likely ▁to ▁behave ▁reck lessly ▁after ▁becoming ▁ins ured , ▁either ▁because ▁the ▁ins urer ▁cannot ▁observe ▁this ▁behavior ▁or ▁cannot ▁effectively ▁ret ali ate ▁against ▁it , ▁for ▁example ▁by ▁failing ▁to ▁renew ▁the ▁ins urance . ▁ ▁Ad verse ▁selection ▁ ▁The ▁classic ▁paper ▁on ▁ad verse ▁selection ▁is ▁George ▁A ker lo f ' s ▁" The ▁Market ▁for ▁Lem ons " ▁from ▁ 1 9 7 0 , ▁which ▁brought ▁inform ational ▁issues ▁to ▁the ▁fore front ▁of ▁economic ▁theory . ▁ ▁It ▁discuss es ▁two ▁primary ▁solutions ▁to ▁this ▁problem , ▁signal ing ▁and ▁screen ing . ▁ ▁Sign aling ▁ ▁Michael ▁Sp ence ▁originally ▁proposed ▁the ▁idea ▁of ▁signal ing . ▁ ▁He ▁proposed ▁that ▁in ▁a ▁situation ▁with ▁information ▁asym met ry , ▁it ▁is ▁possible ▁for ▁people ▁to ▁signal ▁their ▁type , ▁thus ▁bel iev ably ▁transfer ring ▁information ▁to ▁the ▁other ▁party ▁and ▁resol ving ▁the ▁asym met ry . ▁ ▁This ▁idea ▁was ▁originally ▁studied ▁in ▁the ▁context ▁of ▁matching ▁in ▁the ▁job ▁market . ▁ ▁An ▁employ er ▁is ▁interested ▁in ▁h iring ▁a ▁new ▁employee ▁who ▁is ▁" sk illed ▁in ▁learning ". ▁ ▁Of ▁course , ▁all ▁pros pective ▁employees ▁will ▁claim ▁to ▁be ▁" sk illed ▁in ▁learning ", ▁but ▁only ▁they ▁know ▁if ▁they ▁really ▁are . ▁▁ ▁This ▁is ▁an ▁information ▁asym met ry . ▁ ▁Sp ence ▁propos es