1. There are twoimportant types of information asymmetries that give rise to two different agency problems: adverse selection and moral hazard. Adverse selection arises from hidden knowledge and creates an agency cost when an aspect of a decision is known to the agent but not to the principal. A moral hazard arises when the shareholders (principal) bear the cost of the manager's (agent) risk taking which creates an agency cost. Outline one example for adverse selection and moral hazard respectively and compare the difference between these two types of information asymmetries. Discuss what solutions are available to companies with high agency costs.