Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 22, Problem 1QR
To determine
Moral hazard.
Expert Solution & Answer
Explanation of Solution
Moral hazard refers to the tendency of a person who is imperfectly monitored to engage in dishonest or undesirable behavior.
To reduce the severity of the problem of moral hazard, an employer may rectify the problem by using the following strategies:
- 1. Better monitoring: This is to prevent irresponsible actions that might occur in the absence of supervision.
- 2. Paying higher wages: A worker who earns efficiency wage is unlikely to shirk his responsibility or work.
- 3. Delayed payments: This involves delaying part of the worker's compensation until later in the worker's life.
Economics Concept Introduction
Concept introduction:
Moral hazard: Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off.
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Chapter 22 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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