Adverse selection:
A) is about actions and occurs after the parties have voluntarily entered into an agreement.
B) is always present when moral hazard arises.
C) relates to unobserved characteristics of people or goods and occurs before the parties have entered into an agreement.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

Adverse selection is related to unobserved characteristics of people or goods and occurs before the parties have entered into an agreement. It is not related to actions taken after the agreement or always present with moral hazard.

Adverse Selection