Explain the purpose of bonding

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Reference no: EM131832416

Home cleaning services and general contractors often advertise that they are bonded.

What this means is that the seller of the service has put up money with a third party that is available to the buyer if, for example, the cleaners damage or steal property or if the general contractor fails to complete the project or completes it in a substandard way.

Using the concepts of moral hazard and signaling, explain the purpose of bonding. As a bonus, why is bonding used for these services in particular?

Reference no: EM131832416

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