contrast adverse selection and moral hazard Then please desc

contrast adverse selection and moral hazard. Then, please describe an adverse selection / a moral hazard problem your company is facing. What is the source of the asymmetric information? Who is the less informed party? What transactions are not being consummated as a result of the information? Could you (or do you) use signaling or screening to consummate these transactions?

Solution

Ans

ADVERSE SELECTION IS THE ASSYMETRIC INFORMATION BEFORE TRANSACTION IS ENTERED INTO WHILEAS MORAL HAZRAD OCCURS DUE TO ASSYMETRIC INFORMATION AFTER TRANSACTION IS ENTERED INTO. MY COMPANY IS FACING THE PROBLEM OF WHOM TO GIVE LOANS (ADVERSE SELECTION) . MY COMPANY IS LESS INFORMED PARTY.I AM NOT ABLE TO SANCTION LOANS TO GOOD CREDIT RISKS DUE TO ABOVE PROBLEM. I USE SCREENING FOR RESOLVING THIS PROBLEM