Alex, who knew nothing about construction, paid Stewart to build an extension on his house. Two years later, a wall of the new extension crumbled because Stewart used poor quality materials. This is an example of

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Quizplus · Accepted Answer

This is an example of moral hazard, as Stewart did not have the incentive to use high quality materials due to the fact that he was paid upfront by Alex and had no liability for the quality of his work two years later. Adverse selection, screening, and signalling all refer to situations where one party has more information than another, which is not the case in this scenario.

Alex, Who Knew Nothing About Construction, Paid Stewart to Build