Moral Hazard 2019-12-30 08:00:00

Moral Hazard

A moral hazard is created when two parties enter into an agreement or contract, but there are no consequences for not following the agreement. In a formal business contract, one party may take unnecessary risks in an attempt to generate profits before the contract finalizes.

Examples of a moral hazard are an employee eating expensive dinners on the company credit card and homeowners who walked away from their homes during the financial crisis because they were so upside down on payments.

 


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