Although regulation is one response to moral hazard problems, but regulation can also cause moral hazard problems.

Question

Quizplus · Accepted Answer

Regulation can create a sense of false security and incentivize risky behavior because regulated entities may feel they have a safety net or protection from failure. Additionally, regulators may be lenient in their enforcement if they believe that failure could have catastrophic effects on the market or economy. These factors can contribute to moral hazard problems.

Although Regulation Is One Response to Moral Hazard Problems, but Regulation