Moral hazard typically occurs because
A) people are dishonest.
B) agreements sometimes create incentives that are costly to monitor so people can act in their self-interest.
C) workers possess diminishing marginal productivity.
D) screening leads to informed people revealing their relevant private information.
E) workers possess adverse selection.

Question

Quizplus · Accepted Answer

Moral hazard refers to the tendency of individuals to take more risks or engage in more risky behavior when they are not fully responsible for the consequences of their actions. This often occurs because agreements or contracts create incentives that are costly to monitor, allowing individuals to act in their self-interest without fear of fully bearing the costs of their actions.

Moral Hazard Typically Occurs Because