Essay
Each situation involves either moral hazard or adverse selection.In each case,identify whether it is a case of moral hazard or adverse selection and find the principal and agent for each situation.
a.A security deposit is required for the summer cottage rental.
b.A one-week-old 2014 Ford Flex is selling at a price that is 30 percent lower than the brand new one.
c.A high-tech company gives stock options to their senior employees.
d.A house insurance premium is lower for people who install a monitoring system in their house.
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a. moral hazard; the landlord is the pri...View Answer
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