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Adverse selection vs. moral hazard

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Question: Explain differences between adverse selection and moral hazard.

use illustrative examples where appropriate.

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Solution Summary

The differences between adverse selection and moral hazard are discussed.

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Moral hazard is a term which is based on the principle that if actors are allowed to escape the consequences of their risky actions, they are more likely to engage in reckless behavior in future. Thus it refers to the risk that a certain policy ...

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