Moral hazard may occur when a firm or individual takes on more risk when it knows that someone else will "pick up the tab."

Question

Quizplus · Accepted Answer

Moral hazard refers to the tendency of individuals or firms to take on more risk when they are insulated from the negative consequences of that risk. This can occur when someone else, such as a government or insurance company, will bear the cost of any losses or damages. As a result, there is less incentive for the individual or firm to exercise caution or limit their exposure to risk.

Moral Hazard May Occur When a Firm or Individual Takes