Critique of Moral Hazard Equivalence
An economist states: 'The problem of a borrower taking on excessive risk with a loan is fundamentally identical to the problem of an insured person behaving more recklessly after getting coverage. In both cases, an agent's hidden actions increase the likelihood of a negative outcome for which the principal bears the cost.'
Briefly critique this statement by explaining one key similarity that supports the economist's view and one key difference that challenges the idea of them being 'fundamentally identical'.
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Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
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Critique of Moral Hazard Equivalence
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