In insurance markets, moral hazard occurs when the behavior of

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Moral hazard refers to the situation where one party changes their behavior because the costs of that behavior are borne by another party. In insurance markets, this typically refers to the insured person changing their behavior in a way that raises costs for the insurer, since the insured person no longer bears the full costs of that behavior. For example, if an insured person knows that their insurance will cover the cost of a medical procedure, they may be more likely to undergo that procedure than if they had to pay for it entirely out of pocket. This can lead to higher costs for the insurer, which can ultimately lead to higher premiums for all insured individuals.

In Insurance Markets, Moral Hazard Occurs When the Behavior of