Question

Give examples from your employment history where you witnessed moral hazard in the workplace. What were the incentives that gave rise to moral hazard? Did the firm take steps to eliminate moral hazard?

Answer 1

Ans- Moral Hazard means a situation in which a person or a party in the agreement takes the risk and is aware of the fact that if things go wrong another party or person will suffer the burden of consequences.

Some of the examples moral hazard at workplace that I witnessed are:

* Some of the colleagues at my workplace were working for other companies at the same time. These companies are supposed to be the competitor.

* I have seen managers giving job to the known person who are their close friends or relatives even if they are so incompetent.

* People who have guaranteed job like public servants become lethargic and sometimes corupted.

The incentives gave rise to moral hazard are described below:-

1) job security given by the company may create moral hazard among the employees

2. when company provides health insurers, Demand formore expensive treatment when they get sick rise.

By investigation and a complete monitoring the firms can reduce or eliminate the risk of moral hazard. Also the company penalized such employess involved in such behaviour. Also company provided performance related pay.