Moral Hazard

Shift toward riskier behavior by a party insulated from the consequences; the classic problem of insurance and credit.

Specifications & Metrics

type

Information economics

introduced

1963

originator

Kenneth Arrow

Core Principles & Analysis

• Arrow's 1963 analysis of medical care made hidden action a core welfare-economics problem.
• Deductibles and co-payments exist to keep a share of the risk on the insured party.
• The 2007-09 crisis revived the term for lenders who originate loans they securitize and sell.

Sources

• Wikipedia: Moral hazard