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Question 3. Problems and Applications # 1 in textbook chapter 20. In each of the following cases, identify whether the problem is adverse selection or
Question 3.Problems and Applications # 1 in textbook chapter 20.
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?
- Rick has gotten a large advance to textbook. With the money in hand, he prefers spending his time sailing rather than sitting in his office working on the book.
- David is trying to get a large advance to textbook. He knows, but publishers don't, that he did poorly on the writing portion of his entrance exam for graduate school.
- Brenda is buying a life insurance policy. She knows that members of her family tend to die young.
- Maria, who has a large life insurance policy, spends her vacation pursuing her favourite hobbies: skydiving, bungee jumping, and bull-fighting.
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