Identify whether each of the following is most likely a case of adverse selection or moral hazard and briefly explain why.
a. A mortgage company intends to sell pools of loans (mortgages) to investors on a non recourse basis. The mortgage company does not attempt to confirm the veracity of the mortgage applicant’s declared income.
b. Your friend intends to declare bankruptcy at the end of the month. Between now and then he plans to charge the maximum amount possible on his credit cards.
c. You do not use the alarm system in your fully insured home because it is “too much trouble.”