Which of the following situations is likely to lead to moral hazard?
(i) a self-employed tradesperson working on her own job site
(ii) the government requiring all insurers to offer flood insurance
(iii) laws requiring all drivers to wear seatbelts
A) (1) any
B) (ii) anly
C) (i) and (i) anly
D) (ii) and (ii) arly

Question

Quizplus · Accepted Answer

Moral hazard refers to the situation where one party takes risks because another party will bear the costs if things go wrong. In this case, requiring all insurers to offer flood insurance could lead to moral hazard, as people living in flood-prone areas may take more risks and be less cautious about protecting their property since they know they can always fall back on insurance to cover the costs of damage. The other situations (a self-employed tradesperson working on her own job site and laws requiring all drivers to wear seatbelts) are unlikely to lead to moral hazard because they do not involve a third party bearing the costs of risky behavior.

Which of the Following Situations Is Likely to Lead to Moral