The principle-agent problem is a type of adverse selection problem.

Question

Quizplus · Accepted Answer

The principal-agent problem is a type of moral hazard problem, not adverse selection. It arises when there is a conflict of interest between a principal (such as an employer) and an agent (such as an employee), due to the agent having more information and potentially acting in their own interest rather than in the best interest of the principal. Adverse selection, on the other hand, occurs before a transaction or agreement is made, when one party has more or better information than the other, leading to a potentially unfavorable selection.

The Principle-Agent Problem Is a Type of Adverse Selection Problem