Definition Moral Hazard Behavior

Moral hazard is a term describing how behavior changes when people are insured against losses. In economic theory moral hazard is a situation in which the behavior of one party may change to the detriment of another after the transaction has taken place. Dit kunnen economische agenten zijn waardoor moral hazard samenhangt met principaal agentproblematiek.

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Moral hazards create win win situations for the people who find themselves in circumstances where they can take risky actions and pass on the risk to others.

Definition moral hazard behavior. A moral hazard is a circumstance or decision in which one party can take risks because they do not have to endure the consequences of their actions. Moral hazard is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. Moral hazard engels moreel risico moreel gevaar of moreel wangedrag is risicoverhogend gedrag van partijen indien zij niet direct risico lopen voor hun daden. For example a person with insurance against automobile theft may be less cautious about locking their car because the negative consequences of vehicle theft are now partially the responsibility of the insurance company.

It arises when both the parties have incomplete information about each other. If for example your car is fully insured against any and all damage and there is no deductible then. The term is generally used in economics and the financial industry.