Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 16, Problem 5Q
To determine
Elaborate on the following terms:
(a) Principal-agent relationship
(b) Moral Hazard
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Students have asked these similar questions
The principal of a school hires Daniel to teach eighth grade students. One goal the principal has is to prepare the students to do well on standardized tests, as he will be judged based on the results of those tests. Daniel prefers to teach in a more creative way, so the students learn a lot, but perform poorly on their standardized tests. This is an example of what problem?
a. Adverse hazard
b. Moral hazard
c. Adverse selection
d. Free-riding
give an example of an existing economic interaction that exhibits moral hazard. describe the setting and talk about efficiency considerations.
Match the situation with its most appropriate label. Use each answer only once.
✓ Only sick people purchase health insurance
✓ I'm not as careful with my laptop computer because it is insured
✓ Company employees make personal phone calls during work hours.
✓ A self-employed stock broker rents office space in the most expensive building in the
city.
A. Adverse selection
B. Signaling
C. Principal-agent problem
D. Moral hazard
Chapter 16 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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Similar questions
- What is moral hazard?arrow_forwardThe difference between moral hazard and adverse selection is a. moral hazard has to do with unobservable characteristics of individuals b. moral hazard has to do with unobservable actions of individuals c. adverse selection is when individuals change their behaviors because of a contract d. adverse selection is when you choose the wrong answer on a testarrow_forwardSomeone indicated that employee’s absence from work despite meeting the eight hours per day requirement affect productivity and increase cost of business. If an employee makes up the hours by coming early and leaving late, how can you call it an example of moral hazard when the manager can easily correct this behavior? Please explain to the class.arrow_forward
- Suppose an individual saves as precaution against adverse events, like unemployment. This is an example of a-adverse selection b-self-insurance c-adverse saving d-moral hazardarrow_forwardIt was taught that liability insurance would undermine the tort system, which has as its central theorem the concept that the individual responsible for injuring another should be made to pay for that injury. Do you think the existence of liability insurance causes one to be less careful than he or she might otherwise be?arrow_forwardPeople drive faster when they have auto insurance. This is an example of: a. Adverse selection. b. Asymmetric information. c. Moral hazard.arrow_forward
- define and explain the importance of moral hazardarrow_forwardExplain the term adverse selection and moral hazard and show how these lead to market failurearrow_forwardGovernment inspectors who check on the quality of services provided by retailers as well as government requirements for licensing in various professions are both attempts to resolve:a. The moral hazard problem.b. The asymmetric information problem.arrow_forward
- What would explain why moral hazard might not occur after the large gains in health insurance coverage?arrow_forwardCyclists travel faster on their bicycles when wearing helmets. Is this an example of adverse selection or moral hazard?arrow_forwardGeorge Akerloff focused the market for used cars and discussed an issue later generally called the "lemons problem." A "lemon" is a low quality used car, with the seller but not the potential buyer aware of this. Since sellers have more information about the quality of the car: a. adverse selection causes an inefficiently large number of transactions to occur. b. moral hazard causes an inefficiently large number of transactions to occur. c. moral hazard causes an inefficiently small number of transactions to occur. d. adverse selection causes an inefficiently small number of transactions to occur.arrow_forward
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