question archive When lenders are unable to get good information about the worthiness of a project, the lender has the problem of: a
When lenders are unable to get good information about the worthiness of a project, the lender has the problem of: a
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When lenders are unable to get good information about the worthiness of a project, the lender has the problem of:
a. adverse hazard
b. adverse selection
c. moral selection
d. moral hazard
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Answer: B
First, choices A and C are made up terms so we have only to choose between moral hazard and adverse selection. Adverse selection is when one party doesn't have good information about a possible transaction and thus will make worse choices in the long run.
