Reference no: EM131051048

Explain how the agency problems have played a role in different parts of the economy: moral hazard (unobserved effort), and adverse selection (unobserved type). Define clearly who are the economic agents involved (managers, stockholders, borrowers, government, etc.). For additional points, use a simple model to illustrate the situations: remember that the most important conditions are the incentive compatibility constraint and the participation constraint. Be concise and clear in your explanation and focus on what the theory says. Avoid
making unfounded statements.