1. asymmetric infomation
Define asymmetric information. Distinquish between hidden characteristics and hidden actions. Which type of asymmetric information contributes to the principal agent problem?
2. The principal agent problem
Disscuss the nature of the principal agent problem. Determine which is the principal and which is the agent in each of the following relationships:
a. A firm that produces export goods and the export management company that helps market its goods overseas.
b. The management of a firm and its stockholders
c. A homeowner and the plumber hired to make repairs
d. A dentist and a patient
e. An employee pension management firm and the company using its services
3. Adverse selection and moral hazard
Describe the problems faced by health insurance companies as a result of adverse selection and moral hazard. How do insurance companies try to reduce these problems?