moral hazard

Examples of moral hazard in the following topics:

• Asymmetric Information: Adverse Selection and Moral Hazard

  • In addition to adverse selection, moral hazards are also a result of asymmetric information.
  • A moral hazard can occur when the actions of one party may change to the detriment of another after a financial transaction.
  • For example, moral hazards occur in employment relationships involving employees and management.
  • A lack of equal information causes economic imbalances that result in adverse selection and moral hazards.
  • An insured driver getting into a car accident is an example of a moral hazard.

• Chapter Questions

  • Identify examples of moral hazard and adverse selection for a person buying car insurance.

• Income Security Policy and Policy Making

  • That a compulsory government program, not the private market, provides unemployment insurance can be explained using the concepts of adverse selection and moral hazard.
  • However, government provision does not eliminate moral hazard."

• Answers to Chapter 5 Questions

  • Moral hazard is a driver become more careless, like leaving his keys in the car.

• Managers, Shareholders, and Bondholders

  • Moral hazard and conflict of interest may arise.

• Incentive Systems for Employees

  • Incentive systems are often implemented to prevent and overcome poor performance, failure to meet organizational goals, poor morale, increased turnover, and the stress of increased demands on employees.
  • One incumbent risk of incentive systems is the moral hazard of encouraging individuals to achieve their own goals and specific targets rather than improving upon organizational performance as a whole.

• Defining Agency Conflicts

  • Moral hazard and conflict of interest (COI) may thus arise .

• Kohlberg and Moral Development

• Occupational Health and Safety

  • Occupational safety and health can be important for moral, legal, and financial reasons.
  • Moral obligations involve the protection of an employee's life and health.

• Financial Rewards for Managers

  • These and other incentive programs are often used to reduce turnover, boost morale and loyalty, improve employee wellness, increase retention, and drive performance.
  • A risk of incentive schemes is ethical hazards.