Short answer Moral hazard versus adverse selection Principle-agent problem Lemons example.

Short answer
1. Moral hazard versus adverse selection
2. Principle-agent problem
3. Lemons example.

Solutions

Expert Solution

(a) moral harzard versus adverse selection

When before closing a deal there is asymmetric relationship between buyer and seller this is known as adverse selection

Whereas when after closing a deal there is asymmetric relationship between buyer and seller it is known as moral hazard

(B) principle agent problem

It is a situation when an entity nor a person is able to make decisions on the behalf of another person it is known as principal agent problem . When one person decison impacts the other person then pricipal agent problem arises.

(C)lemons example

When the quality of goods traded in the Market are the reasons to degrade the problem on the basis of asymmetric information between buyers and sellers

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

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

Give an example of adverse selection problem and an example of moral hazard problem. Explain how...

Give an example of adverse selection problem and an example of moral hazard problem. Explain how the financial intermediaries can help in avoiding these kind of problems and reducing the cost of asymmetric information.

What are adverse selection and moral hazard?

Identify each of the following as an adverse selection or a moral hazard problem: Instructions: In...

Identify each of the following as an adverse selection or a moral hazard problem: Instructions: In each case, very briefly (one sentence or two) state the reason for your choice. a) A person with car insurance fails to lock his car doors when he shops at a mall. b) A person with family history of cancer purchases the most complete health coverage available. c) A person with health insurance takes more risks on the ski slopes of Aspen than he...

Give a concrete example of adverse selection and moral hazard each in financial markets.

Determine if the asymmetric information problem is adverse selection or moral hazard. Then briefly explain the...

Determine if the asymmetric information problem is adverse selection or moral hazard. Then briefly explain the structure of the asymmetric problem for each. Football Season Insurance offers to reduce the premium on its auto insurance policies to drivers who install/activate a monitoring device on their cars.

Determine if the asymmetric information problem is adverse selection or moral hazard. Then briefly explain the...

Determine if the asymmetric information problem is adverse selection or moral hazard. Then briefly explain the structure of the asymmetric problem for each. You are very busy and hired a service to maintain your lawn. Because of travel, you are unlikely to be home the day they service it.

In each of the following cases, identify whether the problem is adverse selection or moral hazard...

In each of the following cases, identify whether the problem is adverse selection or moral hazard and explain your answer. How might the problem be dealt with? Rick has gotten a large advance to write a textbook. With the money in hand, he prefers spending his time sailing rather than sitting in his office working on the book. Justin is trying to get a large advance to write a textbook. He knows, but publishers don’t, that he did poorly on...

In each of the following cases, identify whether the problem is adverse selection or moral hazard,...

In each of the following cases, identify whether the problem is adverse selection or moral hazard, and explain your answer. How might the problem be dealt with? Rick has gotten a large advance to write a textbook. With the money in hand, he prefers spending his time sailing rather than sitting in his office working on the book. David is trying to get a large advance to write a textbook. He knows, but publishers don’t, that he did poorly on...

Do you think we live in a more moral hazard society versus adverse selection?

Subjects