Moral hazard is an important concern of insurance arrangements because the existence of insurance ________.

Question

Quizplus · Accepted Answer

Moral hazard occurs when individuals or companies take on more risk knowing that they have insurance to cover potential losses. Thus, insurance provides increased incentives for risk taking, which can lead to inefficient and costly behavior. This is why insurance companies often have policies in place to mitigate moral hazard, such as requiring deductibles or limiting coverage.

Moral Hazard Is an Important Concern of Insurance Arrangements Because