Moral hazard is a principal-agent problem that arises when

Question

Quizplus · Accepted Answer

Moral hazard arises when managers (the agents) have different objectives than the owners (the principals) and can take hidden actions that negatively affect the company's value. Complete contracts may mitigate some of the risk of moral hazard, but they cannot eliminate it entirely. Therefore, the correct answer is D, as both options A and C contribute to the problem of moral hazard.

Moral Hazard Is a Principal-Agent Problem That Arises When