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Preferred term

adverse selection and moral hazard  

Definition

  • Adverse selection and moral hazard are informational imperfections potentially presented in any activity or transaction because of asymmetric information about involved risks. Adverse selection is a possibility that actors undertake an activity or transaction based on actors' characteristics unobservable for others (these are informed actors because they know their own characteristics). [Source: The Encyclopedia of Political Science; Adverse Selection and Moral Hazard]

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https://concepts.sagepub.com/social-science/concept/adverse_selection_and_moral_hazard

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