Which of the following best illustrates the problem of moral hazard?

Question

Quizplus · Accepted Answer

Moral hazard refers to the incentive for an economic agent to take risks or engage in negative behavior because they are insulated from the consequences of their actions. An economic agent that engages in risky behavior once a loan contract is signed represents moral hazard because they may not have the same incentive to act responsibly with the borrowed funds if they know they will not bear the full cost of any negative outcomes. The other answer choices do not accurately represent the concept of moral hazard.

Which of the Following Best Illustrates the Problem of Moral