Which of the following would be an example of a principal trying to deal with a moral hazard problem?
A)The parents of an infant secretly place video cameras in their house before the baby-sitter arrives.
B)An insurance company checks police records to determine if its policyholders have received traffic citations.
C)An employer examines his workers' output on a daily basis.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Moral hazard occurs when one party takes more risks because another party bears the cost of those risks. All options involve monitoring to mitigate such risks: parents monitor a babysitter, an insurance company checks policyholders' behavior, and an employer monitors workers' output.

Which of the Following Would Be an Example of a Principal