Jeremiah Wants to Determine Whether an Action Taken by One

question 149

True/False

Jeremiah wants to determine whether an action taken by one of his subordinates is ethical or unethical. He has already gathered the relevant factual information about the case. The next thing he should do is to determine the most appropriate moral values.

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Definitions:

Moral Hazard

Post-contractual increases in risky or negative behavior. Examples are reduced incentive to exercise care once you purchase insurance and reduced incentives to work hard once you have been hired. Moral hazard is similar to adverse selection in that it is caused by information asymmetry; it differs in that it is caused by hidden actions rather than hidden types.

Taxi Driver

A person employed to drive a car or van, which transports passengers to their chosen destinations for a fee.

Piece-rate

A payment method where workers are paid a fixed rate for each unit of production completed, encouraging productivity by directly linking pay to output.

Moral Hazard

A situation where one party takes on excessive risk because the negative consequences of the risk will be borne by another party.