ADVERSE SELECTION. In general , adverse selection occurs when information asymmetry increases the likelihood of selecting inferior alternatives. In principal-agent relation ships, for example, adverse selection describes a situation in which an agent misrepresents his or her ability to do the job. Such misrepresentation is common during the recruiting process. Once hired, the principal may not be able to accurately assess whether the agent can do the work for which he or she is being paid. The problem is especial by pronounced i n team production, when the principal often cannot ascertain the contributions of individual team members. This in tum creates an incentive for opportunistic employees to free ride on the efforts of others.