One way of describing the solution that high net worth provides to the moral hazard problem is to say that it
A)collateralizes the debt contract.
B)makes the debt contract incentive compatible.
C)state verifies the debt contract.
D)removes all of the risk in the debt contract.

Question

Quizplus · Accepted Answer

High net worth serves as a form of collateral that makes the debt contract incentive compatible, as debtors have something to lose if they default on their obligations. This aligns their interests with those of the lenders and reduces the moral hazard problem.

One Way of Describing the Solution That High Net Worth