Describes a situation where one party does not bear the true costs associated with its actions, and is therefore likely to behave in a reckless fashion.

Moral Hazard issues can occur at any level - for example, government insurance subsidies that allow homeowners to build near vulnerable coastlines; a teenager's car insurance that is incorporated under the parent's accident free policy etc.

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Robert Rubin - 'In an Uncertain World' - describes moral hazard problems at the macro economic level:

In contemplating such a package, we did worry about the 'moral hazard' problem that had...


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