They can't be eliminated completely, but it can be reduced. Think of the Lemon problem with cars. [1] The seller has a lot more information than the buyer.

They can't be eliminated completely, but it can be reduced. Think of the Lemon problem with cars. [1] The seller has a lot more information than the buyer. The buyer can never know as much as the buyer on what's wrong. In theory it becomes impossible to sell good cars because of the lemons. One way to solve this is to have laws where you can go back to the seller. Another way is to have a 3rd party provide a warranty. Similarly in Financial Markets, you can reduce the moral hazard with smart design. You'll still have some residual, but such is the nature of human interactions. [1] http://en.wikipedia.org/wiki/The_Market_for_Lemons http://en.wikipedia.org/wiki/The_Market_for_Lemons