The problem of adverse selection occurs when there are stronger incentives for “bad” commodities to trade in a market than “good” commodities. In the questions above, the “bad” commodities were...

The problem of adverse selection occurs when there are stronger incentives for “bad” commodities to trade in a market than “good” commodities. In the questions above, the “bad” commodities were high-risk drivers.

Most U.S. states require all drivers to purchase auto insurance. How does an insurance mandate such as this reduce the adverse selection problem?