Which of the following are examples of the moral hazard problem? (i) the employment relationship between a worker and an employer
(ii) an insured homeowner who buys too many fire extinguishers
(iii) homeowners who choose to live in a high flood risk area when the government bears the cost of disaster relief
A)(i) only
B)(i) and (ii)
C)(i) and (iii)
D)(ii) and (iii)

Question

Quizplus · Accepted Answer

(i) is not an example of moral hazard as there is no situation of asymmetric information between the worker and employer. 
(ii) is not an example of moral hazard as the insured homeowner is actually taking steps to mitigate risk. 
(iii) is an example of moral hazard as homeowners are making risky choices because they know that the cost of disaster relief will be borne by the government. Therefore, only (i) and (iii) are examples of moral hazard.

Which of the Following Are Examples of the Moral Hazard