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Comparing Market Problems from Information Imbalances
Consider two distinct market problems that arise when one party in a transaction has more information than the other. One problem occurs before a contract is signed, due to unobservable characteristics. The other occurs after the contract is signed, due to unobservable actions. Compare and contrast these two problems. In your answer, explain for each: 1) the timing of the problem relative to the transaction, 2) the nature of the hidden information, and 3) provide a distinct real-world example to illustrate each problem.
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