Moral hazard

Posted in Finance, Accounting and Economics Terms, Total Reads: 708
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Definition: Moral hazard

Moral hazard is a situation in which a party takes a risk because it will not be held accountable for the cost. Hence people/companies may blatantly take certain steps  which never pass the litmus test as far as ethics are concerned, yet that may be  the only way out.

Example : One of the perfect examples of Moral Hazard is the Insurance Industry.

Moral hazard can be somewhat reduced by the placing of responsibilities on both parties of a contract.


 



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