Private information
A) creates moral hazard but eliminates adverse selection.
B) creates adverse selection but eliminates moral hazard.
C) creates both moral hazard and adverse selection.
D) eliminates both moral hazard and adverse selection.

Question

Quizplus · Accepted Answer

Private information can lead to both moral hazard and adverse selection because it causes imbalances in information between parties, leading to risky behavior (moral hazard) and poor selection of risks (adverse selection).

Private Information