ARBUS202 Lecture Notes - Lecture 4: Cut Blocking, Egg Hunt
4 Mar 2016
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Document Summary
The solution shields the agent from the full consequences of their actions, thereby incentivizing more of the same problematic behaviour. Ex. helmets in sports causes even harder contact increasing the chances of head injuries (problem: head injuries, solution: helmets, incentive change: aggressive play) Moral hazard can arise anytime we are shielded from the full consequences for our actions it can trip us up quickly if we are not careful it requests nuanced distinction making. Bank, health, life, travel, business, house, car, food programs, group work. Swim out to the kid (64%) = we are good people! Thinking clearly about moral hazard required us to distinguish between prudential and ethical reasons (solution = prudential, incentive change = ethical) Occurs when those who benefit from resources, goods and/or other services do not pay for them but are allowed access to them due to other people paying for their use. * connection between moral hazard and the free rider problem.
