Each Situation Involves Either Moral Hazard or Adverse Selection

question 101

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.

---

Definitions:

Permissive-indulgent

A parenting style characterized by high responsiveness and low demandingness, where parents are very involved but set few rules and limits.

Dramatic Play

A form of play in which children adopt roles and act out scenes, stories, or situations, fostering creativity, empathy, and social skills.

Social Roles

The parts individuals play as members of a social group, which are accompanied by expectations from society regarding behavior and responsibilities.

Gender Constancy

Gender constancy is the understanding that one's gender remains the same across time and situations, typically achieved by the age of approximately 6 or 7 years.