We Can Say That a Contract Is Able to Prevent

question 47

Multiple Choice

We can say that a contract is able to prevent moral hazard when

• A) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-averse people.
• B) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-loving people.
• C) it shifts risk to risk-loving people.
• D) it eliminates production inefficiencies due to moral hazard and shifts risk to risk-averse people.

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Definitions:

Bad Drivers

Individuals who consistently engage in unsafe driving behaviors, such as speeding, not adhering to traffic signals, or distracted driving.

Commission

A fee paid to an agent or employee for transacting a sale, which is often a percentage of the sale price.

Sale Probability

The likelihood or chance that a product or service will be sold within a given timeframe.

Shirk

The act of avoiding or neglecting duties and responsibilities, often in the workplace.