Skip to main content
1 of 2
The Almighty Bob
  • 1.7k
  • 1
  • 12
  • 26

The problem you are facing has probably both: Moral Hazard and Adverse Selection.

We have hidden action by the doctor (you can't really observe his level of effort during the surgery), therefore we have Moral Hazard.

Additionally, you (probably) can not know beforehand of the doctor is a good or bad doctor, so his type (good or bad) is unknown. So, there is hidden information and therefore possibly Adverse Selection. One example could be that a good doctor would never work for the amount you pay, so the doctor you hire is of the bad type.

Remark: I did not specify good/bad doctor here, as it could be many different things; a bad doctor could just be a lazy doctor or a badly trained doctor.

The Almighty Bob
  • 1.7k
  • 1
  • 12
  • 26