________ has occurred if the manager of a firm takes an action that furthers her own interests at the expense of the firm's profits.
A) Incentive scheming
B) Adverse selection
C) Signaling
D) Moral hazard

Question

Quizplus · Accepted Answer

The scenario described is an example of moral hazard, which occurs when a person or entity takes risks because they do not bear the full consequences if things go wrong. In this case, the manager may take actions that benefit herself (such as a large bonus or promotion) but harm the firm's profits. This behavior can be seen as a moral hazard because the manager is not fully accountable for the results of her actions.

________ Has Occurred If the Manager of a Firm Takes