In situations where there is a potential for moral hazard,the increased efficiency achieved through incentive schemes is:
A) due to the reduction in resources that are dedicated to observing behavior.
B) not certain, because incentive schemes can also create costs.
C) easily achieved because incentive schemes are easy to design and yield predictable results.
D) controversial because it usually comes at the expense of equity.

Question

Quizplus · Accepted Answer

Incentive schemes can create costs and may not always result in increased efficiency in situations where there is a potential for moral hazard. This is because moral hazard allows individuals to take risks without bearing the full consequences, and incentivizing behavior may not fully address this underlying issue. Additionally, incentive schemes may create unintended consequences or lead to unethical behavior, furthering the potential costs outweighing the benefits. Therefore, the answer is B.

In Situations Where There Is a Potential for Moral Hazard,the