Moral hazard arises from
A)the difficulty of distinguishing good-risk borrowers from bad-risk borrowers.
B)the likelihood that bad-risk borrowers are more likely to accept a loan than are good-risk borrowers.
C)savers' difficulties in monitoring borrowers.
D)borrowers' difficulties in locating savers.

Question

Quizplus · Accepted Answer

Moral hazard arises when there is asymmetric information after a transaction occurs, making it difficult for one party (in this case, savers) to monitor the actions of another party (borrowers). This can lead to the borrower engaging in riskier behavior than they would if they were under constant surveillance.

Moral Hazard Arises from