Beyond Moral Hazard – Some Thoughts On Criminal Hazard and Insurance
2/2008
Moral hazard is often cited as an example of a market imperfection. It originates in situations of informational asymmetry, where one party to a contract is better informed than the other. Generally, moral hazard arises in the enforce¬ment of contracts where it is too costly to observe the behavior of a party to a contract and the fulfillment of the contract is measured at only one or a few margins (Eggertson 1990). This may encourage individuals to behave opportunistically or to evade responsibility for their actions.
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