Jeannette was a manager at Fabco. Instead of working full-time on Fabco's projects, she used Fabco's tools, employees, computers, and other resources to work on a research project that she hopes might help her start her own firm. This is an example of adverse selection.

Question

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This is an example of moral hazard, which is the difficulty of the principal to ascertain whether the agent has really put forth a best effort. In this situation, the agent is able to do the work but may decide not to do so. For example, Jeannette uses the company resources to set up her own business rather than being fully dedicated to do the work she was expected to do.

Jeannette Was a Manager at Fabco