Moral Hazard Occurs When Contracts Are Written in Such a Way

question 91

Multiple Choice

Moral hazard occurs when contracts are written in such a way that

• A) the interests of agent and principal converge.
• B) the interests of agent and principal diverge.
• C) agents will wish to maximize the principal's utility.
• D) production and risk-bearing efficiency are achieved.

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Definitions:

Expert Power

The influence wielded by an individual or an entity because of their expertise, skills, or knowledge.

Alternate Sources

Different or supplementary origins from which something can be obtained or learned.

Technical Jargon

Specialized language used by professionals in a particular field that may be difficult for others outside the field to understand.

Referent Power

The ability to influence others based on personal relationships or charisma.