Which of the following is NOT a solution to a moral hazard problem?
A)Government rules and social norms can help align incentives.
B)Make hidden actions observable by monitoring.
C)Pick the right kind of agents.
D)Give the principal stronger incentives.

Question

Quizplus · Accepted Answer

Moral hazard problems arise when one party takes more risks because they do not bear the full consequences of their actions. The solutions typically involve aligning the interests of the involved parties (A), making actions observable to reduce information asymmetry (B), and selecting agents whose interests are naturally aligned with the principal (C). Giving the principal stronger incentives (D) does not address the root of moral hazard, which is about the agent's behavior and incentives, not the principal's.

Which of the Following Is NOT a Solution to a Moral