Question

In: Economics

The lemon's problem is a moral hazard problem and the principle agent problem is an adverse...

The lemon's problem is a moral hazard problem and the principle agent problem is an adverse selection problem.

True

False

Solutions

Expert Solution

False, because principal agent problem is a moral hazard problem and the lemon's problem problem is an adverse selection problem. Adverse selection implies that one party has more information as compare to the other party and moral hazard problem implies that one person will take a risky activity because he or she knows that he or she does not have to bear the cost of those risky activities, for example, insured people will involve in risky activities as they know insurance company will pay the cost of those risky activities.

Rahul Sunny answered 2 years ago
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