• Entry
  • Reader's guide
  • Entries A-Z
  • Subject index

Moral Hazard

Moral hazard is a type of principal-agent problem. Principal-agent problems arise when two entities, a principal and an agent, enter into a contract, but the principal in the contract does not have full information about the agent or about the agent’s actions.

This entry distinguishes between moral hazard— principal-agent problems involving hidden actions— and principal-agent problems involving hidden information. The entry discusses moral hazard in employment contracts and identifies a potential solution to the problem of moral hazard in employment contracts. Examples related to the economics of education are provided.

Moral Hazard and Principal-Agent Problems

Insurance contracts are often used as examples of principal-agent problems. When it is legal to do so, a company selling health insurance policies will usually charge a higher price to someone in poor ...

    • Loading...
    locked icon

    Sign in to access this content

    Get a 30 day FREE TRIAL

    • Watch videos from a variety of sources bringing classroom topics to life
    • Read modern, diverse business cases
    • Explore hundreds of books and reference titles