(Solved):Explain the difference between adverse selection and moral hazard in insurance markets. Can one exist without the other? View Answer…

 

Question

Explain the difference between adverse selection and moral hazard in insurance markets. Can one exist without the other?

 

EXPERT ANSWER

The outstanding difference between adverse selection and moral hazards is that the former refers to a situation whereby there is asymmetric information in the market. In other words, one of the market players, buyers or sellers, possess information that the other party does not have. Therefore, the advantaged party seizes the chance

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