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:

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A tax imposed on goods or services that is based on a fixed amount for each unit sold.

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A volatile, flammable liquid derived from petroleum, used chiefly as fuel in internal-combustion engines.

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