Asked by Elizabeth Wagner on Sep 24, 2024
Verified
A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing
A) Adverse selection
B) Moral hazard
C) Forced bankruptcy
D) None of the above
Adverse Selection
A situation in finance and insurance where there is an asymmetric information problem causing bad risks to be more likely to be selected.
Moral Hazard
A situation in economics where one party can take risks because they do not have to bear the full consequences of their actions.
Limited Supervision
This term describes a work environment where employees are given the freedom to complete tasks and make decisions with minimal oversight from managers or supervisors.
- Identify the distinctions between moral hazard and adverse selection.
- Understand the significance of employing screening and selection mechanisms to deter shirking.
Verified Answer
Learning Objectives
- Identify the distinctions between moral hazard and adverse selection.
- Understand the significance of employing screening and selection mechanisms to deter shirking.
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