Moral hazard results from ________ information,and adverse selection results from ________ information.
A) private; private
B) private; public
C) public; private
D) public; public
E) None of the above answers is correct because both are the result of the lemons problem.

Question

Quizplus · Accepted Answer

Moral hazard refers to the increase in the risk-taking behavior of an individual or organization when they are insured. This is because the individual or organization knows that they are protected from the consequences of their actions. Moral hazard results from private information because only the individual or organization knows the extent of their actions and the potential risks involved. Adverse selection, on the other hand, refers to the situation when one party in a transaction has more or better information than the other party. This results in the second party being disadvantaged because they are unaware of the complete picture. Adverse selection results from private information because only one party in the transaction has access to certain information.

Moral Hazard Results from ________ Information,and Adverse Selection Results from ________

Moral Hazard Results from Information,and Adverse Selection Results from