A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing
A)Adverse selection
B)Moral hazard
C)Forced bankruptcy
D)None of the above

Question

​A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing
A)​Adverse selection
B)Moral hazard
C)Forced bankruptcy
D)​None of the above

Quizplus · Accepted Answer

Moral hazard occurs when one party in a transaction has the opportunity to assume additional risks that negatively affect the other party because the latter cannot adequately monitor the former's behavior. In this context, the firm is concerned about how well candidates can work with limited supervision, indicating a worry that employees might not perform as expected when not closely monitored, which aligns with the concept of moral hazard.

​A Firm That Screens Candidates to Determine How Well They

A Firm That Screens Candidates to Determine How Well They