Which of the following is (are) examples of moral hazard?
I. An unemployed worker reduced his effort to find a job after he became eligible for unemployment insurance.
II. Banks make exceptionally risky investments because they expect government bailouts if their investments fail.
III. After a university made the morning-after pill available on campus, more students became sexually promiscuous.
A) I, II, and III
B) I
C) II
D) I and II

Question

Quizplus · Accepted Answer

Moral hazard occurs when an individual or institution takes more risks because they do not bear the full consequences of their actions. All three examples illustrate situations where parties engage in riskier behavior due to the presence of a safety net (unemployment insurance, government bailouts, and access to the morning-after pill), which reduces the negative consequences of their actions.

Which of the Following Is (Are) Examples of Moral Hazard