Which of the following is an example of moral hazard?
A) I hire you to work in my garden for a fixed fee, and you work hard all day.
B) I hire you to work at an hourly rate and you work as slowly as possible.
C) You apply for the job only because I pay a fixed wage per day, no matter how much or little you do.
D) You agree to be paid by the weed to work in my garden, and then you work hard.
E) You agree to be paid by the weed to work in my garden, and then you don't work hard.

Question

Quizplus · Accepted Answer

Moral hazard occurs when one party takes more risks because they do not have to bear the full consequences of their actions. In option B, the worker is paid by the hour and may work slowly, knowing they will still be paid, which is a classic example of moral hazard.

Which of the Following Is an Example of Moral Hazard