Adverse selection and moral hazard problems arise when there is

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Quizplus · Accepted Answer

Adverse selection and moral hazard both arise from the presence of asymmetric information, where one party has more information than the other. Adverse selection occurs when one party has information that the other does not have, leading to an unfair advantage. Moral hazard occurs when one party's behavior changes because they know the other party is unaware of their actions. Complete information or too much information would not cause adverse selection or moral hazard, and symmetric information means both parties have the same amount of information, so there would be no advantage or disadvantage for either party.

Adverse Selection and Moral Hazard Problems Arise When There Is