Moral hazard is
A) the tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party.
B) when one of the parties to an agreement has an incentive after the agreement is made to act in a manner that brings additional benefits to himself or herself at the expense of the other party.
C) a situation in which only bad quality items are bought and sold.
D) absent after a person who dislikes risk buys insurance against the risk.
E) an action taken outside a market that conveys information that can be used by that market.

Question

Quizplus · Accepted Answer

Moral hazard refers to the incentive for one party in an agreement to act in a manner that brings additional benefits to themselves at the expense of the other party after the agreement is made. This can occur, for example, when an insured individual takes greater risks because they know their insurance company will pay for any resulting losses.

Moral Hazard Is