When does the moral hazard problem arise
A)when an agent performs a task on behalf of a principal
B)when a principal performs a task on behalf of an agent
C)when a moral person trusts an immoral person to perform a task for him
D)when an immoral person bribes a moral person to perform a task for her

Question

Quizplus · Accepted Answer

The moral hazard problem arises when an agent, who is responsible for carrying out a task on behalf of a principal, has an incentive to behave in a way that is not aligned with the interests of the principal. This can occur when the agent is not fully accountable for the outcomes of their actions or when they are able to take actions that benefit themselves at the expense of the principal. Moral hazard can lead to inefficiencies and suboptimal outcomes, as the principal may not be able to trust that the agent will act in their best interests.

When Does the Moral Hazard Problem Arise