Suppose an advertising firm purchases additional insurance against theft,and as a result,the partners are not very careful about locking their office doors when they leave.This is an example of
A)the free-rider problem.
B)adverse selection.
C)a public good.
D)a common property resource.
E)moral hazard.

Question

Quizplus · Accepted Answer

Moral hazard refers to the phenomenon where individuals or firms take greater risks or act less carefully because they are protected against losses by insurance or other means. In this case, the firm's purchase of additional insurance against theft has reduced the partners' incentives to be careful about locking their office doors. This is an example of moral hazard because the partners are taking more risks than they would if they did not have insurance.

Suppose an Advertising Firm Purchases Additional Insurance Against Theft,and as a Result,the