Moral hazard is a problem that arises when
A)an agent performs a task on behalf of a principal.
B)a principal performs a task on behalf of an agent.
C)a moral person trusts an immoral person to perform a task for him.
D)an immoral person bribes a moral person to perform a task for him.

Question

Quizplus · Accepted Answer

Moral hazard arises when an agent has an incentive to take more risks or act in their own interest because they do not bear the full consequences of their actions. This is typically a problem that occurs in principal-agent relationships where the agent is acting on behalf of the principal, such as in an employment or contracting relationship. Choices B, C, and D do not accurately describe the problem of moral hazard.

Moral Hazard Is a Problem That Arises When