moralhazard
Moral hazard is a situation in which one party's behavior changes after obtaining protection from risk, because the party no longer bears the full consequences of that risk. This shift in incentives can lead to riskier actions or reduced effort, increasing expected costs for others, such as insurers, lenders, or taxpayers.
Common settings include health or auto insurance, where deductibles or copayments do not fully deter use; financial
Moral hazard arises from information asymmetry and misaligned incentives, often discussed in the context of insurance,
To counter moral hazard, contracts may include deductibles and co-pays, performance-based incentives, monitoring and reporting, risk-based
Moral hazard is a descriptive concept about incentives, not a moral judgment; empirical evidence varies. Some
Related concepts include adverse selection and the principal-agent problem; the term frequently appears in policy debates