Constructivist and Ecological Rationality #5

A market in which lenders can measure and monitor each borrower's risk will charge more/less for more/less risk. Lenders will also deny loans to risks that are too high. Pooling customers into different classes -- short-term loans to businesses, longer-term loans to businesses, loans to states/municipalities for various purposes, car loans, mortgages, loans for college, and so on -- may be the best practical market solution to attenuate the problems of adverse selection and asymmetric information. "The non-existence of certain markets that are not self-sustainable, or their failure to serve all potential customers, or that otherwise encounter incentive compatibility problems that fail to align prices with individual costs and benefits, is evidence of market success, not market failure" (p. 97, my bold).