Explain the differences between moral hazard and holdup.
A) Moral hazard arises when a party who is better informed about her actions.
B) Holdup can occur even if information about actions is symmetric.
C) a and b.
D) Neither a nor b.

Question

Quizplus · Accepted Answer

Moral hazard involves situations where one party takes on more risk because they know the other party will bear the cost, often arising in contexts where one party has more information about their actions than the other. Holdup, on the other hand, refers to a situation where one party exploits their bargaining position at the expense of another, and this can occur even when both parties have symmetric information about actions.

Explain the Differences Between Moral Hazard and Holdup