Management MGT 100 Lecture Notes - Lecture 16: Human Capital, Moral Hazard, Adverse Selection
18 Aug 2016
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Document Summary
Mutual funds have to begin disclosing publicly how they voted in the past year. Shareholders made calls to shift balance of power away from corporate executives and disclose more info. Allows them to set their own agenda when dealing with executives. Moral hazard is a problem that arises when one person, called the agent, is performing some task on behalf of another person, called the principal. If the principal cannot perfectly monitor the agent, the agent tends to undertake less effort than the principal considers desirable. The moral hazard is the hazard of inappropriate or immoral behavior by the agent. If the worker is caught shirking and is fired, he suffers a larger penalty. Adverse selection is a problem that arises in markets in which the seller knows more about the attributes of the good being sold than the buyer does. Buyer runs the risk of being sold a good of low quality.
