Adverse selection and moral hazard are problems that arise in the presence of asymmetric information.

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Adverse selection occurs when one party in a transaction has more or better information than the other party, typically leading to a selection of poorer-quality goods or risks. Moral hazard happens when one party takes on more risk because they know the other party bears the consequences. Both are issues that arise due to asymmetric information, where one party has more or better information than the other.

Adverse Selection and Moral Hazard Are Problems That Arise in the Presence