(Solved):In each of the following cases, identify whether the problem is adverse selection or moral hazard, and explain your answer. How might the problem be dealt with? 1. Rick has gotten a large advance t… View Answer…

 

Question

In each of the following cases, identify whether the problem is adverse selection or moral hazard, and explain your answer. How might the problem be dealt with?

1. Rick has gotten a large advance to write a textbook. With the money in hand, he prefers spending his time sailing rather than sitting in his office working on the book.

2. David is trying to get a large advance to write a textbook.

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