Which statement best explains the relationship of moral hazard,adverse selection,hidden actions,and asymmetric information
A)The moral hazard problem is a problem involving hidden actions.
B)Adverse selection is a problem involving hidden actions.
C)Adverse selection is a problem involving principals and agents.
D)Moral hazard always involves asymmetric information; asymmetric information always involves adverse selection.

Question

Quizplus · Accepted Answer

Moral hazard occurs when one party takes risks because the costs of those risks will be borne by another party. Hidden actions refer to situations where one party's behavior is not observable by the other party, which can create moral hazard. Therefore, the moral hazard problem is a problem involving hidden actions. Adverse selection is a problem where one party has more information than the other, which is also a form of asymmetric information. However, it doesn't necessarily involve hidden actions.

Which Statement Best Explains the Relationship of Moral Hazard,adverse Selection,hidden