More people started building houses in the earthquake-prone regions of Polonia after its government launched a compensation scheme for houses damaged in earthquakes in these regions.This is an example of ________.
A) adverse selection
B) a positive externality
C) moral hazard
D) herd behavior

Question

Quizplus · Accepted Answer

This is an example of moral hazard because the compensation scheme for houses damaged in earthquakes incentivizes people to build houses in earthquake-prone regions without taking proper precautions because they know they will receive compensation if their house is damaged.

More People Started Building Houses in the Earthquake-Prone Regions of Polonia