Moral hazard occurs when
A)an employer closely monitors an employee.
B)two people consider a trade with each other and one person has relevant information about some aspect of the product's quality that the other person lacks.
C)an employee lacks an incentive to promote the best interests of the employer, and the employer cannot observe the actions of the employee.
D)an employee closely monitors the actions of their employer.

Question

Quizplus · Accepted Answer

Moral hazard occurs when an employee lacks an incentive to promote the best interests of the employer, and the employer cannot observe the actions of the employee. This can cause the employee to take risks or engage in actions that may benefit themselves at the expense of the employer.

Moral Hazard Occurs When