Moral hazard focuses on_____, while adverse selection focuses on _____.
A)unobserved characteristics of people occurring before parties enter into an agreement; actions that arise after the parties enter an agreement
B)what can happen in the absence of information asymmetries; actions that require information asymmetry
C)actions that arise after the parties enter an agreement; unobserved characteristics of people occurring before parties enter into an agreement
D)None of these statements are true.

Question

Quizplus · Accepted Answer

Moral hazard refers to the situation where one party to an agreement engages in risky behavior or fails to act in good faith because they do not bear the full consequences of their actions, typically occurring after the parties have entered into an agreement. Adverse selection, on the other hand, deals with the problem that arises before an agreement is made, where one party has more or better information than the other, often leading to a selection of poorer risks or quality due to the information asymmetry about the characteristics of the people involved.

Moral Hazard Focuses On_____, While Adverse Selection Focuses on _____

Moral Hazard Focuses On_, While Adverse Selection Focuses on _