Moral hazard problems arise when
A)lenders have difficulty in distinguishing between good and lemon firms.
B)when a downturn in economic activity makes repaying loans difficult for borrowers.
C)borrowers default on loans.
D)borrowers have an incentive to conceal information.

Question

Quizplus · Accepted Answer

Moral hazard problems arise when borrowers have an incentive to conceal information or take risks that are not in line with the lender's interests. This can occur when lenders cannot fully assess the borrower's behavior or when borrowers face limited consequences for poor decisions.

Moral Hazard Problems Arise When