Moral hazard means that as a firm grows and adds personnel, the new hires typically do not have the same ownership incentives as the original founders, so the new hires may not be as motivated as the founders to put in long hours or may even try to avoid hard work.

Question

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Moral hazard refers to the risk that a person or organization may take greater risks because they are not bearing the full consequences of their actions. In terms of firms, it can lead to a lack of motivation or effort among employees who do not have the same ownership incentives as the founders.

Moral Hazard Means That as a Firm Grows and Adds