A-Z Popular New Economics Search »
Economics
 
Related

What is Moral Hazard?

 , updated on
Moral hazard is a situation in which a decision maker can benefit from taking a risk but will not pay the costs if the decision goes badly. This tends to lead to poor quality decisions and excessive risk taking.

Examples

A bank that can expect high profits from risky investments or a government rescue should the investments fail.
A company executive who will be rewarded with a high bonus if risks go well and significant benefits if their employment is terminated due to risks working out badly.
A mortgage originator who is paid to acquire mortgage contracts but incurs no consequences if those mortgages turn out to be poor quality.
An agent who is paid a commission to purchase art investments but pays no costs if these investments fail.
A business owner who is careless about fire risks because they have comprehensive fire insurance with a low deductible.
A corporate culture that allows managers to claim responsibility for successes and assign blame for failure to subordinates.
A company with close ties to a government that continues to get new contracts despite a history of delivering cost overruns and failed projects.
A monopoly that loses no customers when it takes risks that impact customer satisfaction.
Overview: Moral Hazard
Area
Definition
A situation in which a decision maker can take risks without paying the costs if things go badly.
Related Concepts
Next: Perverse Incentives

Economics

This is the complete list of articles we have written about economics.
Added Value
Advanced Economy
Adverse Selection
Alpha
Animal Spirits
Arbitrage
Attention Economics
Bank Reserves
Bargaining Power
Barriers To Entry
Behavioral Economics
Behavioral Finance
Bounded Growth
Bounded Rationality
Business Cluster
Business Value
Capital Flight
Capital Goods
Capitalism
Capitulation
Category Killer
Circular Economy
Club Theory
Commodification
Commodities
Commons
Comparative Advantage
Competition
Competitive Parity
Competitiveness
Consumerism
Cost Competition
Critical Mass
Customary Pricing
Deadweight Loss
Debt
Deflation
Demand
Division Of Labor
Dumping
Economic Activity
Economic Advantage
Economic Bad
Economic Conditions
Economic Context
Economic Development
Economic Growth
Economic Infrastructure
Economic Problems
Economic Sector
Economic Systems
Economic Theories
Economics
Economies Of Density
Economies Of Scale
Ecotax
Equilibrium
Excess Burden
Experience Economy
Externalities
Extreme Value Theory
Factors Of Production
Failure Demand
Finance
Fiscal Dominance
Food Sovereignty
Free Market
Gains From Trade
Gdp
Giffen Good
Goods
Happiness Economics
Hyperinflation
Income Distribution
Industrial Complex
Industrial Economy
Industrialization
Inferior Good
Inflation
Information Asymmetry
Intangible Goods
Intangible Value
Investing
Invisible Hand
Knowledge Economy
Labor
Labor Productivity
Long Tail
Macroeconomics
Marginal Utility
Market Conditions
Market Economy
Market Failure
Market Forces
Market Power
Marketing Economics
Markets
Mean Regression
Media Economics
Merit Good
Microeconomics
Middle Class
Monetary Policy
Monopoly
Overexploitation
Plateau Effect
Predatory Pricing
Price Economics
Price Umbrella
Price War
Pricing Strategy
Production
Profit Motive
Rational Choice Theory
Rent Seeking
Resources
Rule Of Three
Scalability
Scale
Scarcity
Search Good
Service Economy
Shrinkflation
State Capitalism
Sticky Prices
Superior Good
Superior Goods
Supply
Supply Shock
Sustainable Economics
Switching Barriers
Threat Of Substitutes
Trade War
Traditional Economy
Uneconomic Growth
Unsought Goods
Value
Value Creation
Veblen Goods
Zero-sum Game
If you enjoyed this page, please consider bookmarking Simplicable.
 

Economic Theories

A list of economic theories that are particularly useful for business.

Adverse Selection

The tendency for people at high risk to buy insurance.

Economic Advantage

A list of economic positions or capabilities that allow you to outperform in a particular industry.

Knowledge Work

A definition of knowledge work with examples.

Production

A definition of production with examples.

Post Scarcity

An overview of post-scarcity.

Economic Infrastructure

The common types of economic infrastructure.

Business Competition

The common types of business competition.

Inefficiency

The common types of inefficiency.

Supply Examples

An overview of supply with common examples.

Alpha vs Beta

The difference between two common investment measurements.

Regression Toward The Mean

An overview of Regression Toward The Mean.

Efficient Market Hypothesis

An overview of the Efficient Market Hypothesis.

Animal Spirits

An overview of animal spirits, a theory of investing.

Financial Markets

A definition of financial market with examples.

Mr Market

A definition of Mr. Market, an investing theory.

Organic Growth

A definition of organic growth with examples.

Concept Company

The common types of concept company.

Information Costs

A definition of information costs with examples.

Channel Check

The definition of channel check with examples.
The most popular articles on Simplicable in the past day.

New Articles

Recent posts or updates on Simplicable.
Site Map