The situation in which an employee prefers to exert less effort compared with the effort desired by the owner because the employee's effort CANNOT accurately be monitored and enforced is known as a(n):
A)incentive
B)moral hazard
C)objective
D)imputed cost

Question

Quizplus · Accepted Answer

Moral hazard refers to the situation where one party takes risks because the costs associated with those risks will not be felt by that party. In the given scenario, the employee knows that their effort cannot be accurately monitored and enforced, which creates a moral hazard problem. The incentive is related to rewards given for good performance. Objectives are goals set by the organization, while imputed cost is an estimated cost that is not necessarily a real cost incurred by the organization.

The Situation in Which an Employee Prefers to Exert Less