When moral hazard occurs, the _____ informed party may be exploited and resources may be consumed without generating _____.
A) more; profit
B) more; utility
C) less; value
D) less; profit

Question

Quizplus · Accepted Answer

In moral hazard situations, the less informed party (typically the principal) may be exploited by the more informed party (typically the agent) who may consume resources without generating value. Option C correctly identifies that the less informed party may be exploited without generating value. Options A and B are incorrect because they use the term 'more informed party' instead of 'less informed party'. Option D is incorrect because it suggests that there is a profit, but it may not generate any profit in moral hazard situations.

When Moral Hazard Occurs, the _____ Informed Party May Be