Moral hazard is more likely to arise when
A) one side of an economic relationship cannot observe the behavior of those on the other side.
B) adverse selection is present.
C) insurance policies have high deductibles.
D) people are uninsured.

Question

Quizplus · Accepted Answer

Moral hazard occurs when one party takes risks because they do not bear the full consequences of their actions. This is more likely to happen when the other party cannot observe the behavior of the first party because it is easier for the first party to hide their risky behavior.

Moral Hazard Is More Likely to Arise When