________ means that as a firm grows and adds personnel, the new hires typically do not have the same ownership incentives as the original founders, so the new hires may not be as motivated as the founders to put in long hours or may even try to avoid hard work.
A) Difficult selection
B) Adverse hazard
C) Ethical selection
D) Productivity hazard
E) Moral hazard

Question

Quizplus · Accepted Answer

This is an example of moral hazard, which occurs when one party has an incentive to act in its own interest at the expense of the other party. In this case, the new hires may not have the same level of incentive to work hard and contribute to the success of the firm as the original founders who have ownership stakes. This is because the new hires do not have the same level of personal investment in the firm's success.

________ Means That as a Firm Grows and Adds Personnel