A moral hazard problem can exist between
A)a firm's shareholders and bondholders who hold riskless debt claim
B)a firm's shareholders and managers
C)a bank and a potential borrower who is applying for a loan
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

A moral hazard problem can exist between a firm's shareholders and managers because the managers may take risks that benefit themselves at the expense of the shareholders. This is because the managers may not bear the full costs of their actions, which can create a moral hazard problem. The other options listed may also involve moral hazard problems, but the question asks for the best choice.

A Moral Hazard Problem Can Exist Between