tutor2u | Moral hazard


Moral hazard

When the party with superior information alters his/her behaviour in such a way that benefits himself while imposing costs on those with inferior information. For example, moral hazard occurs when insured consumers are likely to take greater risks, knowing that a claim will be paid for by their cover. The consumer knows more about his/her intended actions than the producer (e.g. the insurer).A short revision video on moral hazard can be found here

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