Question

⦁ Discuss two methods for reducing the impact of moral hazard.

Answer 1

Meaning of Moral Hazard.

Moral Hazard rolls up when the real existence has the stimulus encouragement to incline its unveiling of any sort of hazardous entity or riskiness. In such conditions, one of the grp act as a protector and other grp surely incur the price.

FOR EXAMPLE - A family have not insured the car from and future damage if it may occur.

METHODS FOR REDUCING THE IMPACT.

1. Financial bailouts are something which helps to diminish the impact of moral hazard is such a way to be like lending institutions slouch to make their heavy return in those loans which are one as considered as risky. They are more half-mast the loan at a time when they have some sort of expectation from the government.
2. The impact of the moral hazard also reduces by offering incentives or any type of encouragement. This is to pre prevent the unexpected behaviour for taking the risk