Information asymmetry is a problem that afflicts managers of companies all over the world. It occurs when one party to a transaction has more information than the other party to said transaction. This obviously also creates other problems for managers. We can identify four main areas where information asymmetry causes problems. The problems caused are adverse selection, moral hazard, hiring practices and insider trading. This essay will follow the structure of further defining and explaining each of these topics and the impact each of them has on the manager. We will then move on to possible solutions to these problems, which include screening, reporting and government intervention. Finally in this essay each of these solutions will be critically evaluated to show which of these is best suited to each problem created by information asymmetry. Adverse selection is what happens due to information asymmetry before the transaction actually takes place. It occurs due to a type of asymmetric information called hidden features. Hidden characteristics are things that one party to a transaction knows about himself but which is unknown to the other party (Baye, 2000). Adverse selection is a situation in which a selection process ends with only those with undesirable characteristics remaining. Probably the best example of adverse selection is auto insurance. Suppose there are two types of poor drivers, those who are simply bad drivers and those who are simply unlucky. This explains why there are some good drivers who have huge premiums or simply can't get car insurance. The insurance company is unable to determine which drivers have bad driving habits and which have just had a series of unfortunate accidents. Therefore, due to the risks and uncertainty in hiring practices, it is easy to see why this is a problem for managers. However, as has been demonstrated, there are some solutions to some of these problems, but many of these are solutions that themselves contain incomplete information. Therefore, it is obvious that in the near future there will always be information asymmetries that managers will have to deal with, and they will probably be better informed in using the solutions presented here but also simply in using their best judgment. REFERENCES Baye, Michael. R, Managerial Economics and Business Strategy, 3rd edition, 2000, McGraw-Hill, USAPass, Christopher, et al, Collins Dictionary Economics, 3rd edition, 2000, HarperCollins Publishers, GlasgowKatz, Michael L., Rosen, Harvey S., Microeconomics, 3rd edition, 1998, Irwin/McGraw-Hill, USA Hirshleifer, Jack, Time, Uncertainty, and Information, 1989, Oxford