Solutions to the moral hazard problem include
A)low net worth.
B)monitoring and enforcement of restrictive covenants.
C)greater reliance on equity contracts and less on debt contracts.
D)greater reliance on debt contracts than financial intermediaries.

Question

Quizplus · Accepted Answer

Monitoring and enforcement of restrictive covenants help mitigate moral hazard by ensuring that borrowers adhere to agreed-upon terms, reducing the risk of them engaging in undesirable activities.

Solutions to the Moral Hazard Problem Include