Moral hazard is, in general, the asymmetric information problem that occurs
A) after a transaction is consummated.
B) due to a size difference in the parties to a transaction.
C) with equity financing.
D) before a transaction is consummated.

Question

Quizplus · Accepted Answer

Moral hazard is the situation where one party to a transaction has an incentive to take undue risks because the cost of those risks will be borne, at least in part, by the other party. It typically occurs after a transaction is consummated, as it involves actions taken by one party that the other party cannot observe or control, leading to an imbalance in information and incentives.

Moral Hazard Is, in General, the Asymmetric Information Problem That