2 examples of moral hazard and adverse selection. except: Insurance, dating, hiring, loaning money.

Expert Solution

Since moral hazard problem arises when there is unequal information between two parties and there is a change in the behaviour of one party after a deal has happened.

The example of moral hazards are government bailouts and salesperson compensation.

On the other hand, an adverse selection problem arises when there's a lack of proper information prior to a deal between a buyer and a seller.

Lemon market (market for old cars). Here sellers have more information but buyers have less information.

Rahul Sunny answered 2 years ago

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