Moral hazard

Moral Hazard - in German "moral danger" - describes in economics a risky, hidden strategy of people who, after signing a contract, take advantage of information advantages through information asymmetry. You can assume that if it fails, others will bear some or all of the consequences.

Example: Insurance protects an insured person from financial damage, who therefore takes greater risks than if he had to bear a possible loss himself.

Moral hazard denotes the "danger of moral venture", that is, the danger that one contracting party, as soon as it is unobserved, could behave out of selfishness to the detriment of the other contracting party without the other contracting party ever discovering and tracking it down could.

The term comes from property insurance and describes the behavior to be assumed: no sooner has a person insured an item than they are more careless with it out of convenience and thus increase the likelihood of damage.

Heute hat der Begriff generell in die Vertragstheorie Eingang gefunden, insbesondere in die Theorie der Delegation und Agency theory. Moral Hazard greift in Situationen, in denen sich auch im Nachhinein sich nicht alle Details und Umstände vollständig erfassen lassen. Asymmetrische Information wäre an sich kein Problem, wenn nicht ein möglicher Interessenskonflikt hinzukäme. So sind Verträge zwischen zwei Parteien, die eigentlich kooperieren wollen, erschwert. Die Nachteile werden, monetär gemessen, als Agency costs designated.

Various approaches are suitable for alleviating the danger of moral risk: First, contracts are only concluded with people whose moral attitude is lofty and who put self-interest aside, even if selfish behavior could never be discovered. Second, tightened controls are recommended, or rules known as the fine print of contracts.

But this solution method is also expensive, not only because the tests are time-consuming, but also because the conclusion of a contract with many ancillary provisions (small print) is more complex than a simple contract.

The third approach aims to induce those contracting parties whose behavior cannot be fully observed by means of certain self-interest incentives to behave in a non-detrimental manner.

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