Signaling eases some problems of_____ but causes problems with _____.
A) asymmetric information; adverse selection
B) adverse selection; moral hazard
C) asymmetric information; moral hazard
D) moral hazard; asymmetric information

Question

Quizplus · Accepted Answer

Signaling can help to reduce problems caused by asymmetric information by providing credible information to the other party. However, it can also exacerbate problems with moral hazard by incentivizing individuals to engage in riskier behaviors since they believe they have communicated their competency or trustworthiness through signaling. Therefore, signaling can mitigate one problem but create another.

Signaling Eases Some Problems Of_____ but Causes Problems with _____

Signaling Eases Some Problems Of_ but Causes Problems with _