A moral hazard occurs whenever there are incentives for economic agents who cannot be monitored to behave in a manner contrary to what is expected of them.

Question

Quizplus · Accepted Answer

This is the correct definition of a moral hazard. When economic agents, such as borrowers or investors, have incentives to take on excessive risk because they know they won't bear the full consequences of their actions, this creates a moral hazard problem. This can occur when there is incomplete information or imperfect monitoring of their behavior.

A Moral Hazard Occurs Whenever There Are Incentives for Economic