Author Question: When does the problem of adverse selection arise in any market?[br][br][b][color=#566D7E]Question ... (Read 21 times)

wenmo · **on:** Jun 30, 2018

When does the problem of adverse selection arise in any market?

Question 2

The CEO and stockholders are not necessarily the same people. This gives rise to
A) upstream and downstream contracts.
B) a principal-agent problem.
C) complete contracts.
D) a control over moral hazard.

allisonblackmore · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The problem of adverse selection becomes prominent when a seller is unable to obtain reliable information from a number of buyers. In insurance, adverse selection can happen if high-risk persons insure themselves more heavily than low-risk persons.

Answer to Question 2

B