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<span>Finance</span> </div> </a> <button aria-controls="toc-Finance-sublist" class="cdx-button cdx-button--weight-quiet cdx-button--icon-only vector-toc-toggle"> <span class="vector-icon mw-ui-icon-wikimedia-expand"></span> <span>Toggle Finance subsection</span> </button> <ul id="toc-Finance-sublist" class="vector-toc-list"> <li id="toc-Incentives_to_moral_hazard_in_accounting_rules" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Incentives_to_moral_hazard_in_accounting_rules"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.1</span> <span>Incentives to moral hazard in accounting rules</span> </div> </a> <ul id="toc-Incentives_to_moral_hazard_in_accounting_rules-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Connection_to_financial_crisis_of_2007−08" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Connection_to_financial_crisis_of_2007−08"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.2</span> <span>Connection to financial crisis of 2007−08</span> </div> </a> <ul id="toc-Connection_to_financial_crisis_of_2007−08-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Insurance_industry" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Insurance_industry"> <div class="vector-toc-text"> <span class="vector-toc-numb">3</span> <span>Insurance industry</span> </div> </a> <ul id="toc-Insurance_industry-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Numerical_example" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Numerical_example"> <div class="vector-toc-text"> <span class="vector-toc-numb">4</span> <span>Numerical example</span> </div> </a> <ul id="toc-Numerical_example-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Economic_theory" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Economic_theory"> <div class="vector-toc-text"> <span class="vector-toc-numb">5</span> <span>Economic theory</span> </div> </a> <ul id="toc-Economic_theory-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Managerial_economics" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Managerial_economics"> <div class="vector-toc-text"> <span class="vector-toc-numb">6</span> <span>Managerial economics</span> </div> </a> <ul id="toc-Managerial_economics-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-See_also" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#See_also"> <div class="vector-toc-text"> <span class="vector-toc-numb">7</span> <span>See also</span> </div> </a> <ul id="toc-See_also-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-References" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#References"> <div class="vector-toc-text"> <span class="vector-toc-numb">8</span> <span>References</span> </div> </a> <ul id="toc-References-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-External_links" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#External_links"> <div class="vector-toc-text"> <span class="vector-toc-numb">9</span> <span>External links</span> </div> </a> <ul id="toc-External_links-sublist" class="vector-toc-list"> </ul> </li> </ul> </div> </div> </nav> </div> </div> <div class="mw-content-container"> <main id="content" class="mw-body"> <header class="mw-body-header vector-page-titlebar"> <nav aria-label="Contents" class="vector-toc-landmark"> <div id="vector-page-titlebar-toc" class="vector-dropdown vector-page-titlebar-toc vector-button-flush-left" > <input type="checkbox" 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href="https://ast.wikipedia.org/wiki/Riesgu_moral" title="Riesgu moral – Asturian" lang="ast" hreflang="ast" data-title="Riesgu moral" data-language-autonym="Asturianu" data-language-local-name="Asturian" class="interlanguage-link-target"><span>Asturianu</span></a></li><li class="interlanguage-link interwiki-az mw-list-item"><a href="https://az.wikipedia.org/wiki/M%C9%99n%C9%99vi_z%C9%99r%C9%99r" title="Mənəvi zərər – Azerbaijani" lang="az" hreflang="az" data-title="Mənəvi zərər" data-language-autonym="Azərbaycanca" data-language-local-name="Azerbaijani" class="interlanguage-link-target"><span>Azərbaycanca</span></a></li><li class="interlanguage-link interwiki-bg mw-list-item"><a href="https://bg.wikipedia.org/wiki/%D0%9C%D0%BE%D1%80%D0%B0%D0%BB%D0%B5%D0%BD_%D1%80%D0%B8%D1%81%D0%BA" title="Морален риск – Bulgarian" lang="bg" hreflang="bg" data-title="Морален риск" data-language-autonym="Български" data-language-local-name="Bulgarian" class="interlanguage-link-target"><span>Български</span></a></li><li class="interlanguage-link interwiki-ca mw-list-item"><a href="https://ca.wikipedia.org/wiki/Risc_moral" title="Risc moral – Catalan" lang="ca" hreflang="ca" data-title="Risc moral" data-language-autonym="Català" data-language-local-name="Catalan" class="interlanguage-link-target"><span>Català</span></a></li><li class="interlanguage-link interwiki-cs mw-list-item"><a href="https://cs.wikipedia.org/wiki/Mor%C3%A1ln%C3%AD_hazard" title="Morální hazard – Czech" lang="cs" hreflang="cs" data-title="Morální hazard" data-language-autonym="Čeština" data-language-local-name="Czech" class="interlanguage-link-target"><span>Čeština</span></a></li><li class="interlanguage-link interwiki-da mw-list-item"><a href="https://da.wikipedia.org/wiki/Moralfare" title="Moralfare – Danish" lang="da" hreflang="da" data-title="Moralfare" data-language-autonym="Dansk" data-language-local-name="Danish" class="interlanguage-link-target"><span>Dansk</span></a></li><li class="interlanguage-link interwiki-de mw-list-item"><a href="https://de.wikipedia.org/wiki/Moralisches_Risiko" title="Moralisches Risiko – German" lang="de" hreflang="de" data-title="Moralisches Risiko" data-language-autonym="Deutsch" data-language-local-name="German" class="interlanguage-link-target"><span>Deutsch</span></a></li><li class="interlanguage-link interwiki-el mw-list-item"><a href="https://el.wikipedia.org/wiki/%CE%97%CE%B8%CE%B9%CE%BA%CF%8C%CF%82_%CE%BA%CE%AF%CE%BD%CE%B4%CF%85%CE%BD%CE%BF%CF%82" title="Ηθικός κίνδυνος – Greek" lang="el" hreflang="el" data-title="Ηθικός κίνδυνος" data-language-autonym="Ελληνικά" data-language-local-name="Greek" class="interlanguage-link-target"><span>Ελληνικά</span></a></li><li class="interlanguage-link interwiki-es mw-list-item"><a href="https://es.wikipedia.org/wiki/Riesgo_moral" title="Riesgo moral – Spanish" lang="es" hreflang="es" data-title="Riesgo moral" data-language-autonym="Español" data-language-local-name="Spanish" class="interlanguage-link-target"><span>Español</span></a></li><li class="interlanguage-link interwiki-eo mw-list-item"><a href="https://eo.wikipedia.org/wiki/Morala_hazardo" title="Morala hazardo – Esperanto" lang="eo" hreflang="eo" data-title="Morala hazardo" data-language-autonym="Esperanto" data-language-local-name="Esperanto" class="interlanguage-link-target"><span>Esperanto</span></a></li><li class="interlanguage-link interwiki-eu mw-list-item"><a href="https://eu.wikipedia.org/wiki/Arrisku_moral" title="Arrisku moral – Basque" lang="eu" hreflang="eu" data-title="Arrisku moral" data-language-autonym="Euskara" data-language-local-name="Basque" class="interlanguage-link-target"><span>Euskara</span></a></li><li class="interlanguage-link interwiki-fa mw-list-item"><a href="https://fa.wikipedia.org/wiki/%DA%A9%DA%98%D9%85%D9%86%D8%B4%DB%8C" title="کژمنشی – Persian" lang="fa" hreflang="fa" data-title="کژمنشی" data-language-autonym="فارسی" data-language-local-name="Persian" class="interlanguage-link-target"><span>فارسی</span></a></li><li class="interlanguage-link interwiki-fr mw-list-item"><a href="https://fr.wikipedia.org/wiki/Al%C3%A9a_moral" title="Aléa moral – French" lang="fr" hreflang="fr" data-title="Aléa moral" data-language-autonym="Français" data-language-local-name="French" class="interlanguage-link-target"><span>Français</span></a></li><li class="interlanguage-link interwiki-gl mw-list-item"><a href="https://gl.wikipedia.org/wiki/Risco_moral" title="Risco moral – Galician" lang="gl" hreflang="gl" data-title="Risco moral" data-language-autonym="Galego" data-language-local-name="Galician" class="interlanguage-link-target"><span>Galego</span></a></li><li class="interlanguage-link interwiki-ko mw-list-item"><a href="https://ko.wikipedia.org/wiki/%EB%8F%84%EB%8D%95%EC%A0%81_%ED%95%B4%EC%9D%B4" title="도덕적 해이 – Korean" lang="ko" hreflang="ko" data-title="도덕적 해이" data-language-autonym="한국어" data-language-local-name="Korean" class="interlanguage-link-target"><span>한국어</span></a></li><li class="interlanguage-link interwiki-hi mw-list-item"><a href="https://hi.wikipedia.org/wiki/%E0%A4%A8%E0%A5%88%E0%A4%A4%E0%A4%BF%E0%A4%95_%E0%A4%B8%E0%A4%82%E0%A4%95%E0%A4%9F" title="नैतिक संकट – Hindi" lang="hi" hreflang="hi" data-title="नैतिक संकट" data-language-autonym="हिन्दी" data-language-local-name="Hindi" class="interlanguage-link-target"><span>हिन्दी</span></a></li><li class="interlanguage-link interwiki-hr mw-list-item"><a href="https://hr.wikipedia.org/wiki/Moralni_hazard" title="Moralni hazard – Croatian" lang="hr" hreflang="hr" data-title="Moralni hazard" data-language-autonym="Hrvatski" data-language-local-name="Croatian" class="interlanguage-link-target"><span>Hrvatski</span></a></li><li class="interlanguage-link interwiki-id mw-list-item"><a href="https://id.wikipedia.org/wiki/Risiko_moral_(ekonomi)" title="Risiko moral (ekonomi) – Indonesian" lang="id" hreflang="id" data-title="Risiko moral (ekonomi)" data-language-autonym="Bahasa Indonesia" data-language-local-name="Indonesian" class="interlanguage-link-target"><span>Bahasa Indonesia</span></a></li><li class="interlanguage-link interwiki-is mw-list-item"><a href="https://is.wikipedia.org/wiki/Freistnivandi" title="Freistnivandi – Icelandic" lang="is" hreflang="is" data-title="Freistnivandi" data-language-autonym="Íslenska" data-language-local-name="Icelandic" class="interlanguage-link-target"><span>Íslenska</span></a></li><li class="interlanguage-link interwiki-it mw-list-item"><a href="https://it.wikipedia.org/wiki/Rischio_morale" title="Rischio morale – Italian" lang="it" hreflang="it" data-title="Rischio morale" data-language-autonym="Italiano" data-language-local-name="Italian" class="interlanguage-link-target"><span>Italiano</span></a></li><li class="interlanguage-link interwiki-he mw-list-item"><a href="https://he.wikipedia.org/wiki/%D7%A1%D7%99%D7%9B%D7%95%D7%9F_%D7%9E%D7%95%D7%A1%D7%A8%D7%99" title="סיכון מוסרי – Hebrew" lang="he" hreflang="he" data-title="סיכון מוסרי" data-language-autonym="עברית" data-language-local-name="Hebrew" class="interlanguage-link-target"><span>עברית</span></a></li><li class="interlanguage-link interwiki-la mw-list-item"><a href="https://la.wikipedia.org/wiki/Periculum_morale" title="Periculum morale – Latin" lang="la" hreflang="la" data-title="Periculum morale" data-language-autonym="Latina" data-language-local-name="Latin" class="interlanguage-link-target"><span>Latina</span></a></li><li class="interlanguage-link interwiki-hu mw-list-item"><a href="https://hu.wikipedia.org/wiki/Erk%C3%B6lcsi_kock%C3%A1zat" title="Erkölcsi kockázat – Hungarian" lang="hu" hreflang="hu" data-title="Erkölcsi kockázat" data-language-autonym="Magyar" data-language-local-name="Hungarian" class="interlanguage-link-target"><span>Magyar</span></a></li><li class="interlanguage-link interwiki-mk mw-list-item"><a href="https://mk.wikipedia.org/wiki/%D0%9C%D0%BE%D1%80%D0%B0%D0%BB%D0%B5%D0%BD_%D1%80%D0%B8%D0%B7%D0%B8%D0%BA" title="Морален ризик – Macedonian" lang="mk" hreflang="mk" data-title="Морален ризик" data-language-autonym="Македонски" data-language-local-name="Macedonian" class="interlanguage-link-target"><span>Македонски</span></a></li><li class="interlanguage-link interwiki-nl mw-list-item"><a href="https://nl.wikipedia.org/wiki/Moral_hazard" title="Moral hazard – Dutch" lang="nl" hreflang="nl" data-title="Moral hazard" data-language-autonym="Nederlands" data-language-local-name="Dutch" class="interlanguage-link-target"><span>Nederlands</span></a></li><li class="interlanguage-link interwiki-ja mw-list-item"><a href="https://ja.wikipedia.org/wiki/%E3%83%A2%E3%83%A9%E3%83%AB%E3%83%BB%E3%83%8F%E3%82%B6%E3%83%BC%E3%83%89" title="モラル・ハザード – Japanese" lang="ja" hreflang="ja" data-title="モラル・ハザード" data-language-autonym="日本語" data-language-local-name="Japanese" class="interlanguage-link-target"><span>日本語</span></a></li><li class="interlanguage-link interwiki-no mw-list-item"><a href="https://no.wikipedia.org/wiki/Moralsk_risiko" title="Moralsk risiko – Norwegian Bokmål" lang="nb" hreflang="nb" data-title="Moralsk risiko" data-language-autonym="Norsk bokmål" data-language-local-name="Norwegian Bokmål" class="interlanguage-link-target"><span>Norsk bokmål</span></a></li><li class="interlanguage-link interwiki-pl mw-list-item"><a href="https://pl.wikipedia.org/wiki/Pokusa_nadu%C5%BCycia" title="Pokusa nadużycia – Polish" lang="pl" hreflang="pl" data-title="Pokusa nadużycia" data-language-autonym="Polski" data-language-local-name="Polish" class="interlanguage-link-target"><span>Polski</span></a></li><li class="interlanguage-link interwiki-pt mw-list-item"><a href="https://pt.wikipedia.org/wiki/Risco_moral" title="Risco moral – Portuguese" lang="pt" hreflang="pt" data-title="Risco moral" data-language-autonym="Português" data-language-local-name="Portuguese" class="interlanguage-link-target"><span>Português</span></a></li><li class="interlanguage-link interwiki-ro mw-list-item"><a href="https://ro.wikipedia.org/wiki/Hazard_moral" title="Hazard moral – Romanian" lang="ro" hreflang="ro" data-title="Hazard moral" data-language-autonym="Română" data-language-local-name="Romanian" class="interlanguage-link-target"><span>Română</span></a></li><li class="interlanguage-link interwiki-ru mw-list-item"><a href="https://ru.wikipedia.org/wiki/%D0%9C%D0%BE%D1%80%D0%B0%D0%BB%D1%8C%D0%BD%D1%8B%D0%B9_%D1%80%D0%B8%D1%81%D0%BA" title="Моральный риск – Russian" lang="ru" hreflang="ru" data-title="Моральный риск" data-language-autonym="Русский" data-language-local-name="Russian" class="interlanguage-link-target"><span>Русский</span></a></li><li class="interlanguage-link interwiki-simple mw-list-item"><a href="https://simple.wikipedia.org/wiki/Moral_hazard" title="Moral hazard – Simple English" lang="en-simple" hreflang="en-simple" data-title="Moral hazard" data-language-autonym="Simple English" data-language-local-name="Simple English" class="interlanguage-link-target"><span>Simple English</span></a></li><li class="interlanguage-link interwiki-sr mw-list-item"><a href="https://sr.wikipedia.org/wiki/Moralni_hazard" title="Moralni hazard – Serbian" lang="sr" hreflang="sr" data-title="Moralni hazard" data-language-autonym="Српски / srpski" data-language-local-name="Serbian" class="interlanguage-link-target"><span>Српски / srpski</span></a></li><li class="interlanguage-link interwiki-fi mw-list-item"><a href="https://fi.wikipedia.org/wiki/Moraalikato" title="Moraalikato – Finnish" lang="fi" hreflang="fi" data-title="Moraalikato" data-language-autonym="Suomi" data-language-local-name="Finnish" class="interlanguage-link-target"><span>Suomi</span></a></li><li class="interlanguage-link interwiki-sv mw-list-item"><a href="https://sv.wikipedia.org/wiki/Moralisk_risk" title="Moralisk risk – Swedish" lang="sv" hreflang="sv" data-title="Moralisk risk" data-language-autonym="Svenska" data-language-local-name="Swedish" class="interlanguage-link-target"><span>Svenska</span></a></li><li class="interlanguage-link interwiki-tr mw-list-item"><a href="https://tr.wikipedia.org/wiki/Manevi_zarar" title="Manevi zarar – Turkish" lang="tr" hreflang="tr" data-title="Manevi zarar" data-language-autonym="Türkçe" data-language-local-name="Turkish" class="interlanguage-link-target"><span>Türkçe</span></a></li><li class="interlanguage-link interwiki-uk mw-list-item"><a href="https://uk.wikipedia.org/wiki/%D0%9C%D0%BE%D1%80%D0%B0%D0%BB%D1%8C%D0%BD%D0%B8%D0%B9_%D1%80%D0%B8%D0%B7%D0%B8%D0%BA" title="Моральний ризик – Ukrainian" lang="uk" hreflang="uk" data-title="Моральний ризик" data-language-autonym="Українська" data-language-local-name="Ukrainian" class="interlanguage-link-target"><span>Українська</span></a></li><li class="interlanguage-link interwiki-vi mw-list-item"><a href="https://vi.wikipedia.org/wiki/R%E1%BB%A7i_ro_%C4%91%E1%BA%A1o_%C4%91%E1%BB%A9c" title="Rủi ro đạo đức – Vietnamese" lang="vi" hreflang="vi" data-title="Rủi ro đạo đức" data-language-autonym="Tiếng Việt" data-language-local-name="Vietnamese" class="interlanguage-link-target"><span>Tiếng Việt</span></a></li><li class="interlanguage-link interwiki-wuu mw-list-item"><a href="https://wuu.wikipedia.org/wiki/%E9%81%93%E5%BE%B7%E9%A3%8E%E9%99%A9" title="道德风险 – Wu" lang="wuu" hreflang="wuu" data-title="道德风险" data-language-autonym="吴语" data-language-local-name="Wu" class="interlanguage-link-target"><span>吴语</span></a></li><li class="interlanguage-link interwiki-zh-yue mw-list-item"><a href="https://zh-yue.wikipedia.org/wiki/%E9%81%93%E5%BE%B7%E9%A2%A8%E9%9A%AA" title="道德風險 – Cantonese" lang="yue" hreflang="yue" data-title="道德風險" data-language-autonym="粵語" data-language-local-name="Cantonese" class="interlanguage-link-target"><span>粵語</span></a></li><li class="interlanguage-link interwiki-zh mw-list-item"><a href="https://zh.wikipedia.org/wiki/%E9%81%93%E5%BE%B7%E9%A3%8E%E9%99%A9" title="道德风险 – Chinese" lang="zh" hreflang="zh" data-title="道德风险" data-language-autonym="中文" data-language-local-name="Chinese" class="interlanguage-link-target"><span>中文</span></a></li> </ul> <div class="after-portlet after-portlet-lang"><span class="wb-langlinks-edit wb-langlinks-link"><a href="https://www.wikidata.org/wiki/Special:EntityPage/Q44454#sitelinks-wikipedia" title="Edit interlanguage links" class="wbc-editpage">Edit links</a></span></div> </div> </div> </div> </header> <div class="vector-page-toolbar"> <div class="vector-page-toolbar-container"> <div id="left-navigation"> <nav aria-label="Namespaces"> <div id="p-associated-pages" class="vector-menu vector-menu-tabs mw-portlet mw-portlet-associated-pages" > <div class="vector-menu-content"> <ul class="vector-menu-content-list"> <li id="ca-nstab-main" class="selected vector-tab-noicon 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class="noprint">From Wikipedia, the free encyclopedia</div> </div> <div id="contentSub"><div id="mw-content-subtitle"></div></div> <div id="mw-content-text" class="mw-body-content"><div class="mw-content-ltr mw-parser-output" lang="en" dir="ltr"><div class="shortdescription nomobile noexcerpt noprint searchaux" style="display:none">Increases in the exposure to risk when insured, or when another bears the cost</div> <style data-mw-deduplicate="TemplateStyles:r1236090951">.mw-parser-output .hatnote{font-style:italic}.mw-parser-output div.hatnote{padding-left:1.6em;margin-bottom:0.5em}.mw-parser-output .hatnote i{font-style:normal}.mw-parser-output .hatnote+link+.hatnote{margin-top:-0.5em}@media print{body.ns-0 .mw-parser-output .hatnote{display:none!important}}</style><div role="note" class="hatnote navigation-not-searchable">For the novel, see <a href="/wiki/Moral_Hazard_(novel)" title="Moral Hazard (novel)">Moral Hazard (novel)</a>.</div> <p class="mw-empty-elt"> </p> <style 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href="mw-data:TemplateStyles:r1246091330"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1246091330"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1246091330"><table class="sidebar sidebar-collapse nomobile nowraplinks hlist"><tbody><tr><td class="sidebar-pretitle">Part of a <a href="/wiki/Category:Finance" title="Category:Finance">series</a> on</td></tr><tr><th class="sidebar-title-with-pretitle" style="background:#efefef;padding:0.4em;"><a href="/wiki/Finance" title="Finance">Finance</a></th></tr><tr><td class="sidebar-image"><span class="notpageimage" typeof="mw:File"><a href="/wiki/File:Philippine-stock-market-board.jpg" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/d/d7/Philippine-stock-market-board.jpg/250px-Philippine-stock-market-board.jpg" decoding="async" width="250" height="188" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/d/d7/Philippine-stock-market-board.jpg/375px-Philippine-stock-market-board.jpg 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/d/d7/Philippine-stock-market-board.jpg/500px-Philippine-stock-market-board.jpg 2x" data-file-width="640" data-file-height="480" /></a></span></td></tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Financial_market" title="Financial market">Markets</a></div><div class="sidebar-list-content mw-collapsible-content"><table class="sidebar nomobile nowraplinks" style="background-color: transparent; color: var( --color-base ); border-collapse:collapse; border-spacing:0px; border:none; width:100%; margin:0px; font-size:100%; clear:none; float:none"><tbody><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;"> <a href="/wiki/Financial_asset" title="Financial asset">Assets</a></th></tr><tr><td class="sidebar-content hlist" style="padding-left:0.5em;padding-right:0.5em;"> <ul><li><a href="/wiki/Asset_(economics)" title="Asset (economics)">Asset (economics)</a></li> <li><a href="/wiki/Bond_market" title="Bond market">Bond</a></li> <li><a href="/wiki/Capital_appreciation" title="Capital appreciation">Asset growth</a></li> <li><a href="/wiki/Capital_asset" title="Capital asset">Capital asset</a></li> <li><a href="/wiki/Commodity_market" title="Commodity market">Commodity</a></li> <li><a href="/wiki/Derivatives_market" title="Derivatives market">Derivatives</a></li> <li><a href="/wiki/Domain_name_speculation" title="Domain name speculation">Domains</a></li> <li><a href="/wiki/Equity_(finance)" title="Equity (finance)">Equity</a></li> <li><a href="/wiki/Foreign_exchange_market" title="Foreign exchange market">Foreign exchange</a></li> <li><a href="/wiki/Money_market" title="Money market">Money</a></li> <li><span class="nowrap"><a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">Over-the-counter</a></span></li> <li><a href="/wiki/Private_equity" title="Private equity">Private equity</a></li> <li><a href="/wiki/Real_estate" title="Real estate">Real estate</a></li> <li><a href="/wiki/Spot_market" title="Spot market">Spot</a></li> <li><a href="/wiki/Stock_market" title="Stock market">Stock</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;"> <a href="/wiki/Financial_market_participants" title="Financial market participants">Participants</a></th></tr><tr><td class="sidebar-content hlist" style="padding-top:0.15em;"> <ul><li><a href="/wiki/Angel_investor" title="Angel investor">Angel investor</a></li> <li><a href="/wiki/Bull_(stock_market_speculator)" title="Bull (stock market speculator)">Bull (stock market speculator)</a></li> <li><a href="/wiki/Financial_planner" title="Financial planner">Financial planner</a></li> <li><a href="/wiki/Investor" title="Investor">Investor</a> <ul><li><a href="/wiki/Institutional_investor" title="Institutional investor">institutional</a></li></ul></li> <li><a href="/wiki/Retail" title="Retail">Retail</a></li> <li><a href="/wiki/Speculation" title="Speculation">Speculator</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;"> <a href="/wiki/Financial_centre" title="Financial centre">Locations</a></th></tr><tr><td class="sidebar-content hlist" style="padding-top:0.15em;"> <ul><li><a href="/wiki/Financial_centre" title="Financial centre">Financial centres</a></li> <li><a href="/wiki/Offshore_financial_centre" title="Offshore financial centre">Offshore financial centres</a></li> <li><a href="/wiki/Conduit_and_sink_OFCs" title="Conduit and sink OFCs">Conduit and sink OFCs</a></li></ul></td> </tr></tbody></table></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Financial_instrument" title="Financial instrument">Instruments</a></div><div class="sidebar-list-content mw-collapsible-content" style="padding-left:2.0em;padding-right:2.0em;"><div class="hlist"> <ul><li><a href="/wiki/Bond_(finance)" title="Bond (finance)">Bond</a></li> <li><a href="/wiki/Cash" title="Cash">Cash</a></li> <li><a href="/wiki/Collateralised_debt_obligation" class="mw-redirect" title="Collateralised debt obligation">Collateralised debt obligation</a></li> <li><a href="/wiki/Credit_default_swap" title="Credit default swap">Credit default swap</a></li> <li><a href="/wiki/Time_deposit" title="Time deposit">Time deposit</a> (<a href="/wiki/Certificate_of_deposit" title="Certificate of deposit">certificate of deposit</a>)</li> <li><a href="/wiki/Line_of_credit" title="Line of credit">Credit line</a></li> <li><a href="/wiki/Deposit_account" title="Deposit account">Deposit</a></li> <li><a href="/wiki/Derivative_(finance)" title="Derivative (finance)">Derivative</a></li> <li><a href="/wiki/Futures_contract" title="Futures contract">Futures contract</a></li> <li><a href="/wiki/Indemnity" title="Indemnity">Indemnity</a></li> <li><a href="/wiki/Insurance" title="Insurance">Insurance</a></li> <li><a href="/wiki/Letter_of_credit" title="Letter of credit">Letter of credit</a></li> <li><a href="/wiki/Loan" title="Loan">Loan</a></li> <li><a href="/wiki/Mortgage" title="Mortgage">Mortgage</a></li></ul> <div class="hlist"><ul><li><a href="/wiki/Option_(finance)" title="Option (finance)">Option</a> (<a href="/wiki/Call_option" title="Call option">call</a></li><li><a href="/wiki/Exotic_option" title="Exotic option">exotic</a></li><li><a href="/wiki/Put_option" title="Put option">put</a>)</li></ul></div> <ul><li><a href="/wiki/Performance_bonds" class="mw-redirect" title="Performance bonds">Performance bonds</a></li> <li><a href="/wiki/Repurchase_agreement" title="Repurchase agreement">Repurchase agreement</a></li> <li><a href="/wiki/Stock" title="Stock">Stock</a></li> <li><a href="/wiki/Security_(finance)" title="Security (finance)">Security</a></li> <li><a href="/wiki/Syndicated_loan" title="Syndicated loan">Syndicated loan</a></li> <li><a href="/wiki/Synthetic_CDO" title="Synthetic CDO">Synthetic CDO</a></li></ul> </div></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Corporate_finance" title="Corporate finance">Corporate</a></div><div class="sidebar-list-content mw-collapsible-content"><table class="sidebar nomobile nowraplinks" style="background-color: transparent; color: var( --color-base ); border-collapse:collapse; border-spacing:0px; border:none; width:100%; margin:0px; font-size:100%; clear:none; float:none"><tbody><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;"> General</th></tr><tr><td class="sidebar-content hlist" style="padding-left:0.5em;padding-right:0.5em;"> <ul><li><a href="/wiki/Accounting" title="Accounting">Accounting</a></li> <li><a href="/wiki/Audit" title="Audit">Audit</a></li> <li><a href="/wiki/Capital_budgeting" title="Capital budgeting">Capital budgeting</a></li> <li><a href="/wiki/Capital_structure" title="Capital structure">Capital structure</a></li> <li><a href="/wiki/Corporate_finance" title="Corporate finance">Corporate finance</a></li> <li><a href="/wiki/Credit_rating_agency" title="Credit rating agency">Credit rating agency</a></li> <li><a href="/wiki/Enterprise_risk_management" title="Enterprise risk management">Enterprise risk management</a></li> <li><a href="/wiki/Enterprise_value" title="Enterprise value">Enterprise value</a></li> <li><a href="/wiki/Financial_risk_management" title="Financial risk management">Risk management</a></li> <li><a href="/wiki/Financial_statement" title="Financial statement">Financial statements</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;"> Transactions</th></tr><tr><td class="sidebar-content hlist" style="padding-left:0.5em;padding-right:0.5em;"> <ul><li><a href="/wiki/Leveraged_buyout" title="Leveraged buyout">Leveraged buyout</a></li> <li><a href="/wiki/Mergers_and_acquisitions" title="Mergers and acquisitions">Mergers and acquisitions</a></li> <li><a href="/wiki/Structured_finance" title="Structured finance">Structured finance</a></li> <li><a href="/wiki/Venture_capital" title="Venture capital">Venture capital</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;"> <a href="/wiki/Corporate_tax" title="Corporate tax">Taxation</a></th></tr><tr><td class="sidebar-content hlist" style="padding-left:0.5em;padding-right:0.5em;"> <ul><li><a href="/wiki/Base_erosion_and_profit_shifting" title="Base erosion and profit shifting">Base erosion and profit shifting</a> (BEPS)</li> <li><a href="/wiki/Corporate_tax_haven" class="mw-redirect" title="Corporate tax haven">Corporate tax haven</a></li> <li><a href="/wiki/Tax_inversion" title="Tax inversion">Tax inversion</a></li> <li><a href="/wiki/Tax_haven" title="Tax haven">Tax haven</a></li> <li><a href="/wiki/Transfer_pricing" title="Transfer pricing">Transfer pricing</a></li></ul></td> </tr></tbody></table></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Personal_finance" title="Personal finance">Personal</a></div><div class="sidebar-list-content mw-collapsible-content"> <ul><li><a href="/wiki/Credit_(finance)" class="mw-redirect" title="Credit (finance)">Credit</a> / <a href="/wiki/Consumer_debt" title="Consumer debt">Debt</a></li> <li><a href="/wiki/Employment_contract" title="Employment contract">Employment contract</a></li> <li><a href="/wiki/Financial_planner" title="Financial planner">Financial planning</a></li> <li><div class="hlist"><ul><li><a href="/wiki/Retirement" title="Retirement">Retirement</a></li><li><a href="/wiki/Student_loan" title="Student loan">Student loan</a></li></ul></div></li></ul></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Public_finance" title="Public finance">Public</a></div><div class="sidebar-list-content mw-collapsible-content"><table class="sidebar nomobile nowraplinks" style="background-color: transparent; color: var( --color-base ); border-collapse:collapse; border-spacing:0px; border:none; width:100%; margin:0px; font-size:100%; clear:none; float:none"><tbody><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;;display:block;margin-top:0.15em;"> <a href="/wiki/Government_spending" title="Government spending">Government spending</a></th></tr><tr><td class="sidebar-content" style="padding-top:0.15em;"> <ul><li><a href="/wiki/Government_final_consumption_expenditure" title="Government final consumption expenditure">Final consumption expenditure</a></li> <li><div class="hlist"><ul><li><a href="/wiki/Government_operations" class="mw-redirect" title="Government operations">Operations</a></li><li><a href="/wiki/Redistribution_of_income_and_wealth" title="Redistribution of income and wealth">Redistribution</a></li></ul></div></li> <li><a href="/wiki/Transfer_payment" title="Transfer payment">Transfer payment</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;"> <a href="/wiki/Government_revenue" title="Government revenue">Government revenue</a></th></tr><tr><td class="sidebar-content" style="padding-top:0.15em;;padding-left:0.5em;padding-right:0.5em;"> <ul><li><div class="hlist"><ul><li><a href="/wiki/Tax" title="Tax">Taxation</a></li><li><a href="/wiki/Deficit_spending" title="Deficit spending">Deficit spending</a></li></ul></div></li> <li><div class="hlist"><ul><li><a href="/wiki/Government_budget" title="Government budget">Budget</a> (<a href="/wiki/Government_budget_balance" title="Government budget balance">balance</a>)</li><li><a href="/wiki/Government_debt" title="Government debt">Debt</a></li></ul></div></li> <li><a href="/wiki/Non-tax_revenue" title="Non-tax revenue">Non-tax revenue</a></li> <li><a href="/wiki/Warrant_of_payment" title="Warrant of payment">Warrant of payment</a></li></ul></td> </tr></tbody></table></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Bank" title="Bank">Banking</a></div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"> <ul><li><a href="/wiki/Central_bank" title="Central bank">Central bank</a></li> <li><a href="/wiki/Deposit_account" title="Deposit account">Deposit account</a></li> <li><a href="/wiki/Fractional-reserve_banking" title="Fractional-reserve banking">Fractional-reserve</a></li> <li><a href="/wiki/Full-reserve_banking" title="Full-reserve banking">Full-reserve</a></li> <li><a href="/wiki/Investment_banking" title="Investment banking">Investment banking</a></li> <li><a href="/wiki/Loan" title="Loan">Loan</a></li> <li><a href="/wiki/Money_supply" title="Money supply">Money supply</a></li></ul> </div> <ul><li><a href="/wiki/Lists_of_banks" title="Lists of banks">Lists of banks</a></li></ul> <table class="sidebar nomobile nowraplinks" style="background-color: transparent; color: var( --color-base ); border-collapse:collapse; border-spacing:0px; border:none; width:100%; margin:0px; font-size:100%; clear:none; float:none"><tbody><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;;display:block;margin-top:0.15em;"> <a href="/wiki/Bank_regulation" class="mw-redirect" title="Bank regulation">Bank regulation</a></th></tr><tr><td class="sidebar-content" style="padding-top:0.15em;"> <ul><li><a href="/wiki/Banking_license" title="Banking license">Banking license</a></li> <li><a href="/wiki/Basel_Accords" title="Basel Accords">Basel Accords</a></li> <li><a href="/wiki/Bank_for_International_Settlements" title="Bank for International Settlements">Bank for International Settlements</a></li> <li><a href="/wiki/Financial_Stability_Board" title="Financial Stability Board">Financial Stability Board</a></li> <li><a href="/wiki/Deposit_insurance" title="Deposit insurance">Deposit insurance</a></li> <li><a href="/wiki/Separation_of_investment_and_retail_banking" title="Separation of investment and retail banking">Separation of investment and retail banking</a></li></ul></td> </tr></tbody></table></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Financial_regulation" title="Financial regulation">Regulation</a> <b>·</b> <a href="/wiki/Financial_law" title="Financial law">Financial law</a></div><div class="sidebar-list-content mw-collapsible-content"><table class="sidebar nomobile nowraplinks" style="background-color: transparent; color: var( --color-base ); border-collapse:collapse; border-spacing:0px; border:none; width:100%; margin:0px; font-size:100%; clear:none; float:none"><tbody><tr><td class="sidebar-content"> <ul><li><a href="/wiki/International_Financial_Reporting_Standards" title="International Financial Reporting Standards">International Financial Reporting Standards</a></li> <li><a href="/wiki/ISO_31000" title="ISO 31000">ISO 31000</a></li> <li><a href="/wiki/Professional_certification_in_financial_services" title="Professional certification in financial services">Professional certification</a></li> <li><a href="/wiki/Fund_governance" title="Fund governance">Fund governance</a></li></ul></td> </tr></tbody></table></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Economic_history" title="Economic history">Economic history</a></div><div class="sidebar-list-content mw-collapsible-content"> <ul><li><a href="/wiki/History_of_private_equity_and_venture_capital" title="History of private equity and venture capital">Private equity and venture capital</a></li> <li><a href="/wiki/Recession" title="Recession">Recession</a></li> <li><a href="/wiki/Stock_market_bubble" title="Stock market bubble">Stock market bubble</a></li> <li><a href="/wiki/Stock_market_crash" title="Stock market crash">Stock market crash</a></li> <li><a href="/wiki/Accounting_scandals" title="Accounting scandals">Accounting scandals</a></li></ul></div></div></td> </tr><tr><td class="sidebar-below"> <ul><li><a href="/wiki/Outline_of_finance" title="Outline of finance">Outline</a></li> <li><span class="nowrap"><span class="noviewer" typeof="mw:File"><a href="/wiki/File:Emblem-money.svg" class="mw-file-description"><img alt="icon" src="//upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Emblem-money.svg/16px-Emblem-money.svg.png" decoding="async" width="16" height="16" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Emblem-money.svg/24px-Emblem-money.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Emblem-money.svg/32px-Emblem-money.svg.png 2x" data-file-width="48" data-file-height="48" /></a></span> </span><a href="/wiki/Portal:Business_and_Economics" class="mw-redirect" title="Portal:Business and Economics">Business and Economics portal</a></li> <li><span class="nowrap"><span class="noviewer" typeof="mw:File"><span><img alt="icon" src="//upload.wikimedia.org/wikipedia/commons/thumb/5/55/Bills_and_coins.svg/16px-Bills_and_coins.svg.png" decoding="async" width="16" height="8" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/5/55/Bills_and_coins.svg/24px-Bills_and_coins.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/5/55/Bills_and_coins.svg/32px-Bills_and_coins.svg.png 2x" data-file-width="960" data-file-height="465" /></span></span> </span><a href="/wiki/Portal:Money" title="Portal:Money">Money portal</a></li></ul></td></tr><tr><td class="sidebar-navbar"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1239400231"><div class="navbar plainlinks hlist navbar-mini"><ul><li class="nv-view"><a href="/wiki/Template:Finance_sidebar" title="Template:Finance sidebar"><abbr title="View this template">v</abbr></a></li><li class="nv-talk"><a href="/wiki/Template_talk:Finance_sidebar" title="Template talk:Finance sidebar"><abbr title="Discuss this template">t</abbr></a></li><li class="nv-edit"><a href="/wiki/Special:EditPage/Template:Finance_sidebar" title="Special:EditPage/Template:Finance sidebar"><abbr title="Edit this template">e</abbr></a></li></ul></div></td></tr></tbody></table> <p>In <a href="/wiki/Economics" title="Economics">economics</a>, a <b>moral hazard</b> is a situation where an economic actor has an <a href="/wiki/Incentive" title="Incentive">incentive</a> to increase its exposure to <a href="/wiki/Risk" title="Risk">risk</a> because it does not bear the full costs of that risk. For example, when a corporation is insured, it may take on higher risk knowing that its <a href="/wiki/Insurance" title="Insurance">insurance</a> will pay the associated costs. A moral hazard may occur where the actions of the risk-taking party change to the detriment of the cost-bearing party after a <a href="/wiki/Financial_transaction" title="Financial transaction">financial transaction</a> has taken place. </p><p>Moral hazard can occur under a type of <a href="/wiki/Information_asymmetry" title="Information asymmetry">information asymmetry</a> where the risk-taking party to a transaction knows more about its intentions than the party paying the consequences of the risk and has a tendency or incentive to take on too much risk from the perspective of the party with less information. One example is a principal–agent approach (also called agency theory), where one party, called an <a href="/wiki/Agent_(economics)" title="Agent (economics)">agent</a>, acts on behalf of another party, called the <a href="/wiki/Principal_(commercial_law)" title="Principal (commercial law)">principal</a>. However, a <a href="/wiki/Principal%E2%80%93agent_problem" title="Principal–agent problem">principal–agent problem</a> can occur when there is a conflict of interest between the agent and principal. If the agent has more information about his or her actions or intentions than the principal then the agent may have an incentive to act too riskily (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned. </p> <meta property="mw:PageProp/toc" /> <div class="mw-heading mw-heading2"><h2 id="History">History</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=1" title="Edit section: History"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>According to research by Dembe and Boden,<sup id="cite_ref-1" class="reference"><a href="#cite_note-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup> the term dates back to the 17th century and was widely used by English insurance companies by the late 19th century. Early usage of the term carried negative connotations, implying <a href="/wiki/Insurance_fraud" title="Insurance fraud">fraud</a> or immoral behavior (usually on the part of an insured party). Dembe and Boden point out, however, that prominent mathematicians who studied decision-making in the 18th century used "moral" to mean "subjective", which may cloud the true ethical significance in the term. The concept of moral hazard was the subject of renewed study by economists in the 1960s,<sup id="cite_ref-Arrow_1963_941–732_2-0" class="reference"><a href="#cite_note-Arrow_1963_941–732-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-3" class="reference"><a href="#cite_note-3"><span class="cite-bracket">[</span>3<span class="cite-bracket">]</span></a></sup> beginning with economist Ken Arrow,<sup id="cite_ref-:0_4-0" class="reference"><a href="#cite_note-:0-4"><span class="cite-bracket">[</span>4<span class="cite-bracket">]</span></a></sup> and did not imply immoral behavior or fraud. Economists use this term to describe inefficiencies that can occur when risks are displaced or cannot be fully evaluated, rather than a description of the ethics or morals of the involved parties. </p><p>Rowell and Connelly offer a detailed description of the genesis of the term moral hazard,<sup id="cite_ref-5" class="reference"><a href="#cite_note-5"><span class="cite-bracket">[</span>5<span class="cite-bracket">]</span></a></sup> by identifying salient changes in economic thought, which are identified within the medieval theological and probability literature. Due to the different approaches taken by economics and philosophy in interpreting the concept of “moral hazard,” there are significant differences in their understanding of its underlying causes. In economics, “moral hazard” is often attributed to the malignant development of utilitarianism. In contrast, philosophy and ethics view “moral hazard” from a broader perspective that includes the moral behaviour of individuals and society as a whole. The root cause of “moral hazard” is due to the immoral behaviour of economic agents from a social perspective. Their paper also compares and contrasts the predominantly normative conception of moral hazard found within the insurance-industry literature with the largely positive interpretations found within the economic literature. Often what is described as "moral hazard[s]" in the insurance literature is upon closer reading, a description of the closely related concept, <a href="/wiki/Adverse_selection" title="Adverse selection">adverse selection</a>. </p> <div class="mw-heading mw-heading2"><h2 id="Finance">Finance</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=2" title="Edit section: Finance"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In 1998, <a href="/wiki/William_J._McDonough" class="mw-redirect" title="William J. McDonough">William J. McDonough</a>, head of the New York Federal Reserve, helped the counterparties of <a href="/wiki/Long-Term_Capital_Management" title="Long-Term Capital Management">Long-Term Capital Management</a> avoid losses by taking over the firm. This move was criticized by former Fed Chair Paul Volcker and others as increasing moral hazard.<sup id="cite_ref-nyt080907_6-0" class="reference"><a href="#cite_note-nyt080907-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-nr081229_7-0" class="reference"><a href="#cite_note-nr081229-7"><span class="cite-bracket">[</span>7<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-8" class="reference"><a href="#cite_note-8"><span class="cite-bracket">[</span>8<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-9" class="reference"><a href="#cite_note-9"><span class="cite-bracket">[</span>9<span class="cite-bracket">]</span></a></sup> <a href="/wiki/Tyler_Cowen" title="Tyler Cowen">Tyler Cowen</a> concludes that "creditors came to believe that their loans to unsound financial institutions would be made good by the Fed – as long as the collapse of those institutions would threaten the global credit system."<sup id="cite_ref-nr081229_7-1" class="reference"><a href="#cite_note-nr081229-7"><span class="cite-bracket">[</span>7<span class="cite-bracket">]</span></a></sup> Fed Chair, <a href="/wiki/Alan_Greenspan" title="Alan Greenspan">Alan Greenspan</a>, while conceding the risk of moral hazard, defended the policy to orderly unwind Long-Term Capital by saying the world economy is at stake.<sup id="cite_ref-10" class="reference"><a href="#cite_note-10"><span class="cite-bracket">[</span>10<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-nyt080907_6-1" class="reference"><a href="#cite_note-nyt080907-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup> Greenspan had himself been accused of creating wider moral hazard in markets by using the <a href="/wiki/Greenspan_put" title="Greenspan put">Greenspan put</a>. </p><p>Economist <a href="/wiki/Paul_Krugman" title="Paul Krugman">Paul Krugman</a> described moral hazard as "any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly."<sup id="cite_ref-Krugman_2009_11-0" class="reference"><a href="#cite_note-Krugman_2009-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup> Financial <a href="/wiki/Bailouts" class="mw-redirect" title="Bailouts">bailouts</a> of lending institutions by governments, central banks or other institutions can encourage risky lending in the future if those that take the risks come to believe that they will not have to carry the full burden of potential losses. Lending institutions need to take risks by making loans, and the riskiest loans usually have the potential for making the highest return. </p><p>Taxpayers, depositors and other creditors often have to shoulder at least part of the burden of risky financial decisions made by lending institutions.<sup id="cite_ref-12" class="reference"><a href="#cite_note-12"><span class="cite-bracket">[</span>12<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-13" class="reference"><a href="#cite_note-13"><span class="cite-bracket">[</span>13<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-14" class="reference"><a href="#cite_note-14"><span class="cite-bracket">[</span>14<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-15" class="reference"><a href="#cite_note-15"><span class="cite-bracket">[</span>15<span class="cite-bracket">]</span></a></sup> </p><p>Many have argued that certain types of mortgage <a href="/wiki/Securitization" title="Securitization">securitization</a> contribute to moral hazard. Mortgage securitization enables mortgage originators to pass on the risk that the mortgages they originate might default and not hold the mortgages on their balance sheets and assume the risk. In one kind of mortgage securitization, known as "agency securitizations," default risk is retained by the securitizing agency that buys the mortgages from originators. These agencies thus have an incentive to monitor originators and check loan quality. "Agency securitizations" refer to securitizations by either <a href="/wiki/Ginnie_Mae" class="mw-redirect" title="Ginnie Mae">Ginnie Mae</a>, a government agency, or by <a href="/wiki/Fannie_Mae" title="Fannie Mae">Fannie Mae</a> and <a href="/wiki/Freddie_Mac" title="Freddie Mac">Freddie Mac</a>, both for-profit <a href="/wiki/Government-sponsored_enterprise" title="Government-sponsored enterprise">government-sponsored enterprises</a>. They are similar to the "covered bonds" that are commonly used in <a href="/wiki/Western_Europe" title="Western Europe">Western Europe</a> in that the securitizing agency retains default risk. Under both models, investors take on only interest-rate risk, not default risk. </p><p>In another type of securitization, known as "private label" securitization, default risk is generally not retained by the securitizing entity. Instead, the securitizing entity passes on default risk to investors. The securitizing entity, therefore, has relatively little incentive to monitor originators and maintain loan quality. "Private label" securitization refers to securitizations structured by financial institutions such as investment banks, commercial banks, and non-bank mortgage lenders. </p><p>During the years leading up to the <a href="/wiki/Subprime_mortgage_crisis" title="Subprime mortgage crisis">subprime mortgage crisis</a>, private label securitizations grew as a share of overall mortgage securitization by purchasing and securitizing low-quality, high-risk mortgages. Agency Securitizations appear to have somewhat lowered their standards, but Agency mortgages remained considerably safer than mortgages in private-label securitizations and performed far better in terms of default rates. </p><p>Economist <a href="/wiki/Mark_Zandi" title="Mark Zandi">Mark Zandi</a> of <a href="/wiki/Moody%27s_Analytics" title="Moody's Analytics">Moody's Analytics</a> described moral hazard as a root cause of the subprime mortgage crisis. He wrote that "the risks inherent in mortgage lending became so widely dispersed that no one was forced to worry about the quality of any single loan. As shaky mortgages were combined, diluting any problems into a larger pool, the incentive for responsibility was undermined." He also wrote, "Finance companies weren't subject to the same regulatory oversight as banks. Taxpayers weren't on the hook if they went belly up [pre-crisis], only their shareholders and other creditors were. Finance companies thus had little to discourage them from growing as aggressively as possible, even if that meant lowering or winking at traditional lending standards."<sup id="cite_ref-16" class="reference"><a href="#cite_note-16"><span class="cite-bracket">[</span>16<span class="cite-bracket">]</span></a></sup> </p><p>Moral hazard can also occur with borrowers. Borrowers may not act prudently (in the view of the lender) when they invest or spend funds recklessly. For example, <a href="/wiki/Credit_card" title="Credit card">credit card</a> companies often limit the amount borrowers can spend with their cards because without such limits, borrowers may spend borrowed funds recklessly, leading to default. </p><p>Securitization of mortgages in America started in 1983 at <a href="/wiki/Salomon_Brothers" title="Salomon Brothers">Salomon Brothers</a> and where the risk of each mortgage passed to the next purchaser instead of remaining with the original mortgaging institution. These mortgages and other debt instruments were put into a large pool of debt, and then shares in the pool were sold to many creditors. </p><p>Thus, there is no one person responsible for verifying that any one particular loan is sound, that the assets securing that one particular loan are worth what they are supposed to be worth, that the borrower responsible for making payments on the loan can read and write the language in which the papers that he/she signed were written, or even that the paperwork exists and is in good order. It has been suggested that this may have caused the subprime mortgage crisis.<sup id="cite_ref-17" class="reference"><a href="#cite_note-17"><span class="cite-bracket">[</span>17<span class="cite-bracket">]</span></a></sup> </p><p>Brokers, who were not lending their own money, pushed risk onto the lenders. Lenders, who sold mortgages soon after underwriting them, pushed risk onto investors. Investment banks bought mortgages and chopped up mortgage-backed securities into slices, some riskier than others. Investors bought securities and hedged against the risk of default and prepayment, pushing those risks further along. In a purely capitalist scenario, the last one holding the risk (like a game of <a href="/wiki/Musical_chairs" title="Musical chairs">musical chairs</a>) is the one who faces the potential losses. In the sub-prime crisis, however, national credit authorities (the <a href="/wiki/Federal_Reserve" title="Federal Reserve">Federal Reserve</a> in the US) assumed the ultimate risk on behalf of the citizenry at large. </p><p>Others believe that financial bailouts of lending institutions do not encourage risky lending behavior since there is no guarantee to lending institutions that a bailout will occur. Decreased valuation of a corporation before any bailout would prevent risky, speculative business decisions by executives who fail to conduct proper due diligence in their business transactions. The risk and the burdens of loss became apparent to <a href="/wiki/Lehman_Brothers" title="Lehman Brothers">Lehman Brothers</a>, which did not benefit from a bailout, and other financial institutions and mortgage companies such as <a href="/wiki/Citibank" title="Citibank">Citibank</a> and <a href="/wiki/Countrywide_Financial_Corporation" class="mw-redirect" title="Countrywide Financial Corporation">Countrywide Financial Corporation</a>, whose valuation plunged during the subprime mortgage crisis.<sup id="cite_ref-18" class="reference"><a href="#cite_note-18"><span class="cite-bracket">[</span>18<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-19" class="reference"><a href="#cite_note-19"><span class="cite-bracket">[</span>19<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-20" class="reference"><a href="#cite_note-20"><span class="cite-bracket">[</span>20<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Incentives_to_moral_hazard_in_accounting_rules">Incentives to moral hazard in accounting rules</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=3" title="Edit section: Incentives to moral hazard in accounting rules"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>A 2017 report by the <a href="/wiki/Basel_Committee_on_Banking_Supervision" title="Basel Committee on Banking Supervision">Basel Committee on Banking Supervision</a>,<sup id="cite_ref-21" class="reference"><a href="#cite_note-21"><span class="cite-bracket">[</span>21<span class="cite-bracket">]</span></a></sup> an international regulator for the banking sector, noted that the accounting rules (<a href="/wiki/IFRS" class="mw-redirect" title="IFRS">IFRS</a> # 9 and 13 in particular) leave entities significant discretion in determining financial instrument fair value and identified this discretion as a potential source of moral hazard: "The evidence consistent with accounting discretion as contributing to moral hazard behavior indicates that (additional) prudential valuation requirements may be justified." </p><p>Banking regulators have taken actions to limit discretion and reduce <a href="/wiki/Valuation_risk" title="Valuation risk">valuation risk</a>, i.e. the risk to banks' balance sheets arising from financial instrument valuation uncertainties. A row of regulatory documents has been issued, providing detailed prudential requirements that have many points of contact with the accounting rules and have the indirect effect of curbing the incentives for moral hazard by limiting the discretion left to banks in valuating financial instruments.<sup id="cite_ref-22" class="reference"><a href="#cite_note-22"><span class="cite-bracket">[</span>22<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-23" class="reference"><a href="#cite_note-23"><span class="cite-bracket">[</span>23<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-24" class="reference"><a href="#cite_note-24"><span class="cite-bracket">[</span>24<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-25" class="reference"><a href="#cite_note-25"><span class="cite-bracket">[</span>25<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-26" class="reference"><a href="#cite_note-26"><span class="cite-bracket">[</span>26<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-27" class="reference"><a href="#cite_note-27"><span class="cite-bracket">[</span>27<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-28" class="reference"><a href="#cite_note-28"><span class="cite-bracket">[</span>28<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Connection_to_financial_crisis_of_2007−08"><span id="Connection_to_financial_crisis_of_2007.E2.88.9208"></span>Connection to financial crisis of 2007−08</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=4" title="Edit section: Connection to financial crisis of 2007−08"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951"><div role="note" class="hatnote navigation-not-searchable">Main article: <a href="/wiki/Financial_crisis_of_2007%E2%80%9308" class="mw-redirect" title="Financial crisis of 2007–08">Financial crisis of 2007–08</a></div> <p>Many scholars and journalists have argued that moral hazard played a role in the <a href="/wiki/Financial_crisis_of_2007%E2%80%9308" class="mw-redirect" title="Financial crisis of 2007–08">2008 financial crisis</a>, since numerous actors in the financial market may have had an incentive to increase their exposure to risk.<sup id="cite_ref-:1_29-0" class="reference"><a href="#cite_note-:1-29"><span class="cite-bracket">[</span>29<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-:2_30-0" class="reference"><a href="#cite_note-:2-30"><span class="cite-bracket">[</span>30<span class="cite-bracket">]</span></a></sup> In general, there are three ways in which moral hazard may have manifested itself in the lead up to the financial crisis: </p> <ul><li>Asset managers may have had an incentive to take on more risk when managing other people's money, particularly if they were paid as a percentage of the fund's profits. If they took on more risk, they could expect higher payoff for themselves and were somewhat shielded from losses because they were spending other people's money.<sup id="cite_ref-:1_29-1" class="reference"><a href="#cite_note-:1-29"><span class="cite-bracket">[</span>29<span class="cite-bracket">]</span></a></sup> Therefore, asset managers may have been in a situation of moral hazard, where they would take on more risk than appropriate for a given client because they did not bear the cost of failure.</li> <li>Mortgage loan originators, such as <a href="/wiki/Washington_Mutual" title="Washington Mutual">Washington Mutual</a>, may have had an incentive to understate the risk of loans they originated because the loans were often sold to mortgage pools (see <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed securities</a>). Because loan originators were paid on a per-mortgage basis, they had an incentive to produce as many mortgages as possible, even if they were risky.<sup id="cite_ref-:1_29-2" class="reference"><a href="#cite_note-:1-29"><span class="cite-bracket">[</span>29<span class="cite-bracket">]</span></a></sup> Because these institutions did not expect to hold on to the loans until maturity, they could pass on the risk to the buyer of the loans.<sup id="cite_ref-:2_30-1" class="reference"><a href="#cite_note-:2-30"><span class="cite-bracket">[</span>30<span class="cite-bracket">]</span></a></sup> Therefore, mortgage loan originators may have been in a situation of moral hazard, because they did not bear the costs of the risky mortgages they were underwriting.</li> <li>Third, large banks may have believed they were "<a href="/wiki/Too_big_to_fail" title="Too big to fail">too big to fail</a>." That is, because these banks were so ingrained in the US economy, the federal government would not have allowed them to fail in order to prevent a full-scale economic crash. This belief may have been shaped by the 1998 bailout of <a href="/wiki/Long-Term_Capital_Management" title="Long-Term Capital Management">Long-Term Capital Management</a>.<sup id="cite_ref-nyt080907_6-2" class="reference"><a href="#cite_note-nyt080907-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup> "Too big to fail" banks may have believed they were essentially invincible to failure, thus putting them in a position of moral hazard: they could take on big risks – thus increasing their expected payoff – thinking that the federal government would bail them out in the event of a major failure. Therefore, large banks may have been in a situation of moral hazard, because they did not bear the costs of a catastrophic collapse.</li></ul> <p>Notably, the <a href="/wiki/Financial_Crisis_Inquiry_Commission" title="Financial Crisis Inquiry Commission">Financial Crisis Inquiry Commission</a> (FCIC), tasked by Congress with investigating the causes of the financial crisis, cited moral hazard as a component of the crisis, arguing that many factors, including deregulation in the derivatives market in 2000, reduced federal oversight, and the potential for government bailout of "too big to fail" institutions all played a role in increasing moral hazard in the years leading up to the collapse.<sup id="cite_ref-:5_31-0" class="reference"><a href="#cite_note-:5-31"><span class="cite-bracket">[</span>31<span class="cite-bracket">]</span></a></sup> </p><p>Others have argued that moral hazard could not have played a role in the financial crisis for three main reasons. First, in the event of a catastrophic failure, a government bailout would only come after major losses for the company.<sup id="cite_ref-:3_32-0" class="reference"><a href="#cite_note-:3-32"><span class="cite-bracket">[</span>32<span class="cite-bracket">]</span></a></sup> So even if a bailout was expected it would not prevent the firm from taking losses. Second, there is some evidence that big banks were not expecting the crisis and thus were not expecting government bailouts, though the FCIC tried hard to contest this idea.<sup id="cite_ref-:3_32-1" class="reference"><a href="#cite_note-:3-32"><span class="cite-bracket">[</span>32<span class="cite-bracket">]</span></a></sup> Third, some have argued that negative <a href="/wiki/Externality" title="Externality">externalities</a> from corporate governance were a more important cause, since some risky investments may have had positive expected payoff for the firm but negative expected payoff to society.<sup id="cite_ref-:4_33-0" class="reference"><a href="#cite_note-:4-33"><span class="cite-bracket">[</span>33<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Insurance_industry">Insurance industry</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=5" title="Edit section: Insurance industry"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1251242444">.mw-parser-output .ambox{border:1px solid #a2a9b1;border-left:10px solid #36c;background-color:#fbfbfb;box-sizing:border-box}.mw-parser-output .ambox+link+.ambox,.mw-parser-output .ambox+link+style+.ambox,.mw-parser-output .ambox+link+link+.ambox,.mw-parser-output .ambox+.mw-empty-elt+link+.ambox,.mw-parser-output .ambox+.mw-empty-elt+link+style+.ambox,.mw-parser-output .ambox+.mw-empty-elt+link+link+.ambox{margin-top:-1px}html body.mediawiki .mw-parser-output .ambox.mbox-small-left{margin:4px 1em 4px 0;overflow:hidden;width:238px;border-collapse:collapse;font-size:88%;line-height:1.25em}.mw-parser-output .ambox-speedy{border-left:10px solid #b32424;background-color:#fee7e6}.mw-parser-output .ambox-delete{border-left:10px solid #b32424}.mw-parser-output .ambox-content{border-left:10px solid #f28500}.mw-parser-output .ambox-style{border-left:10px solid #fc3}.mw-parser-output .ambox-move{border-left:10px solid #9932cc}.mw-parser-output .ambox-protection{border-left:10px solid #a2a9b1}.mw-parser-output .ambox .mbox-text{border:none;padding:0.25em 0.5em;width:100%}.mw-parser-output .ambox .mbox-image{border:none;padding:2px 0 2px 0.5em;text-align:center}.mw-parser-output .ambox .mbox-imageright{border:none;padding:2px 0.5em 2px 0;text-align:center}.mw-parser-output .ambox .mbox-empty-cell{border:none;padding:0;width:1px}.mw-parser-output .ambox .mbox-image-div{width:52px}@media(min-width:720px){.mw-parser-output .ambox{margin:0 10%}}@media print{body.ns-0 .mw-parser-output .ambox{display:none!important}}</style><table class="box-More_footnotes_needed plainlinks metadata ambox ambox-style ambox-More_footnotes_needed" role="presentation"><tbody><tr><td class="mbox-image"><div class="mbox-image-div"><span typeof="mw:File"><span><img alt="" src="//upload.wikimedia.org/wikipedia/commons/thumb/a/a4/Text_document_with_red_question_mark.svg/40px-Text_document_with_red_question_mark.svg.png" decoding="async" width="40" height="40" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/a/a4/Text_document_with_red_question_mark.svg/60px-Text_document_with_red_question_mark.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/a/a4/Text_document_with_red_question_mark.svg/80px-Text_document_with_red_question_mark.svg.png 2x" data-file-width="48" data-file-height="48" /></span></span></div></td><td class="mbox-text"><div class="mbox-text-span">This section includes a list of <a href="/wiki/Wikipedia:Citing_sources#General_references" title="Wikipedia:Citing sources">general references</a>, but <b>it lacks sufficient corresponding <a href="/wiki/Wikipedia:Citing_sources#Inline_citations" title="Wikipedia:Citing sources">inline citations</a></b>.<span class="hide-when-compact"> Please help to <a href="/wiki/Wikipedia:WikiProject_Reliability" title="Wikipedia:WikiProject Reliability">improve</a> this section by <a href="/wiki/Wikipedia:When_to_cite" title="Wikipedia:When to cite">introducing</a> more precise citations.</span> <span class="date-container"><i>(<span class="date">December 2012</span>)</i></span><span class="hide-when-compact"><i> (<small><a href="/wiki/Help:Maintenance_template_removal" title="Help:Maintenance template removal">Learn how and when to remove this message</a></small>)</i></span></div></td></tr></tbody></table> <p>Moral hazard has been studied by insurers<sup id="cite_ref-34" class="reference"><a href="#cite_note-34"><span class="cite-bracket">[</span>34<span class="cite-bracket">]</span></a></sup> and academics, such as in the work of <a href="/wiki/Kenneth_Arrow" title="Kenneth Arrow">Kenneth Arrow</a>,<sup id="cite_ref-Arrow_1963_941–732_2-1" class="reference"><a href="#cite_note-Arrow_1963_941–732-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-35" class="reference"><a href="#cite_note-35"><span class="cite-bracket">[</span>35<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-36" class="reference"><a href="#cite_note-36"><span class="cite-bracket">[</span>36<span class="cite-bracket">]</span></a></sup> Tom Baker,<sup id="cite_ref-Baker1996_37-0" class="reference"><a href="#cite_note-Baker1996-37"><span class="cite-bracket">[</span>37<span class="cite-bracket">]</span></a></sup> and John Nyman.<sup id="cite_ref-38" class="reference"><a href="#cite_note-38"><span class="cite-bracket">[</span>38<span class="cite-bracket">]</span></a></sup> </p><p>The name comes originally from the <a href="/wiki/Insurance" title="Insurance">insurance</a> industry. Insurance companies worried that protecting their clients from risks (like fire, or car accidents) might encourage those clients to behave in riskier ways (like smoking in bed or not wearing seatbelts). This problem may inefficiently discourage those companies from protecting their clients as much as the clients would like to be protected. </p><p>Economists argue that the <a href="/wiki/Pareto_efficiency" title="Pareto efficiency">inefficiency</a> results from information asymmetry. If insurance companies could perfectly observe the actions of their clients, they could deny coverage to clients choosing risky actions (like smoking in bed or not wearing seat belts), allowing them to provide thorough protection against risk (fire or accidents) without encouraging risky behavior. However, since insurance companies cannot perfectly observe their clients' actions, they are discouraged from providing the amount of protection that would be provided in a world with perfect information. </p><p>Economists distinguish moral hazard from <a href="/wiki/Adverse_selection" title="Adverse selection">adverse selection</a>, another problem that arises in the insurance industry, which is caused by <i>hidden information</i>, rather than <i>hidden actions</i>. </p><p>The same underlying problem of non-observable actions also affects other contexts besides the insurance industry. It also arises in <a href="/wiki/Banking" class="mw-redirect" title="Banking">banking</a> and <a href="/wiki/Finance" title="Finance">finance</a>: if a financial institution knows it is protected by a <a href="/wiki/Lender_of_last_resort" title="Lender of last resort">lender of last resort</a>, it may make riskier investments than it would in the absence of the protection. </p><p>In insurance markets, moral hazard occurs when the behavior of the insured party changes in a way that raises costs for the insurer since the insured party no longer bears the full costs of that behavior. Because individuals no longer bear the cost of medical services, they have an added incentive to ask for pricier and more elaborate medical service, which would otherwise not be necessary. In those instances, individuals have an incentive to over consume, simply because they no longer bear the full cost of medical services. </p><p>Two types of behavior can change. One type is the risky behavior itself, resulting in a <i><a href="/wiki/Ex_ante" class="mw-redirect" title="Ex ante">before the event</a></i> moral hazard. Insured parties then behave in a more risky manner, resulting in more negative consequences that the insurer must pay for. For example, after purchasing automobile insurance, some may tend to be less careful about locking the automobile or choose to drive more, thereby increasing the risk of theft or an accident for the insurer. After purchasing fire insurance, some may tend to be less careful about preventing fires (say, by smoking in bed or neglecting to replace the batteries in fire alarms). A further example has been identified in <a href="/wiki/Flood_risk_management" class="mw-redirect" title="Flood risk management">flood risk management</a> in which it is proposed that the possession of insurance undermines efforts to encourage people to integrate flood protection and resilience measures in properties exposed to flooding.<sup id="cite_ref-39" class="reference"><a href="#cite_note-39"><span class="cite-bracket">[</span>39<span class="cite-bracket">]</span></a></sup> </p><p>A second type of behavior that may change is the reaction to the negative consequences of risk once they have occurred and insurance is provided to cover their costs. That may be called <i>ex post</i> (after the event) moral hazard. Insured parties then do not behave in a more risky manner that results in more negative consequences, but they ask an insurer to pay for more of the negative consequences from risk as insurance coverage increases. For example, without medical insurance, some may forgo medical treatment due to its costs and simply deal with substandard health. However, after medical insurance becomes available, some may ask an insurance provider to pay for the cost of medical treatment that would not have occurred otherwise. </p><p>Sometimes moral hazard is so severe that it makes insurance policies impossible. Coinsurance, co-payments, and deductibles reduce the risk of moral hazard by increasing the out-of-pocket spending of consumers, which decreases their incentive to consume. These methods work by increasing out-of-pocket expenses for consumers, thereby reducing the incentive for the insured to engage in excessive consumption. For example, by requiring individuals to pay a portion of their health care costs through coinsurance, copayment, or deductibles, insurance providers can give people an incentive to consume less health care and avoid making unnecessary claims. This can help reduce moral hazard by aligning the interests of the insured and the insurer.<sup id="cite_ref-40" class="reference"><a href="#cite_note-40"><span class="cite-bracket">[</span>40<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Numerical_example">Numerical example</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=6" title="Edit section: Numerical example"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <figure class="mw-default-size" typeof="mw:File/Thumb"><a href="/wiki/File:Moral_Hazard_Numerical_Example.png" class="mw-file-description"><img alt="A graphical representation of moral hazard in health insurance. The graph plots price against quantity of health care. Without health insurance, an individual would consume less health care than with health insurance, potentially leading to moral hazard." src="//upload.wikimedia.org/wikipedia/commons/thumb/5/51/Moral_Hazard_Numerical_Example.png/290px-Moral_Hazard_Numerical_Example.png" decoding="async" width="290" height="194" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/5/51/Moral_Hazard_Numerical_Example.png/435px-Moral_Hazard_Numerical_Example.png 1.5x, //upload.wikimedia.org/wikipedia/commons/5/51/Moral_Hazard_Numerical_Example.png 2x" data-file-width="461" data-file-height="308" /></a><figcaption>The blue line represents the downward sloping <a href="/wiki/Demand_curve" title="Demand curve">marginal benefit curve</a>. The orange line represents the constant $10 <a href="/wiki/Supply_(economics)" title="Supply (economics)">marginal cost curve</a> without insurance. The green star is the market equilibrium. When the individual is insured, the marginal cost curve shifts down to 0, leading to a new equilibrium at the yellow star.</figcaption></figure> <p>Consider a potential case of moral hazard in the health care market caused by the purchase of health insurance. Assume health care has constant marginal cost of $10 per unit and the individual's demand is given by <i>Q</i> = 20 − <i>P</i>. Assuming a perfectly competitive market, at equilibrium, the price will be $10 per unit and the individual will consume 10 units of health care. Now, consider the same individual with health insurance. Assume this health insurance makes health care free for the individual. In this case, the individual will have a price of $0 for the health care and thus will consume 20 units. The price will still be $10, but the insurance company would be the one bearing the costs. </p><p>This example shows numerically how moral hazard could occur with health insurance. The individual consumes more health care than the equilibrium quantity because they don't bear the cost of the additional care. </p> <div class="mw-heading mw-heading2"><h2 id="Economic_theory">Economic theory</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=7" title="Edit section: Economic theory"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In economic theory, moral hazard is a situation in which the behavior of one party may change to the detriment of another after the <a href="/wiki/Financial_transaction" title="Financial transaction">transaction</a> has taken place. For example, a person with insurance against automobile theft may be less cautious about locking their car because the negative consequences of vehicle theft are now (partially) the responsibility of the insurance company. A party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk. </p><p>In microeconomics, agency theory analyses the relationship between the principal, the party who delegates decision making authority, and the agent, who executes the service. This theory is a key concept used to explore and resolve issues that have arisen within the relationship of agents and principals, which is known as the <a href="/wiki/Principal%E2%80%93agent_problem" title="Principal–agent problem">principal-agent problem</a>.<sup id="cite_ref-41" class="reference"><a href="#cite_note-41"><span class="cite-bracket">[</span>41<span class="cite-bracket">]</span></a></sup> The theory is subdivided into two categories: (1) the moral hazard model and; (2) the <a href="/wiki/Adverse_selection" title="Adverse selection">adverse selection</a> model. To summarise the latter, adverse selection arises when two parties hold unequal or asymmetric information. In the instance of <i><a href="/wiki/Contract_theory" title="Contract theory">contract theory</a></i><sup id="cite_ref-42" class="reference"><a href="#cite_note-42"><span class="cite-bracket">[</span>42<span class="cite-bracket">]</span></a></sup> (which encompasses agency theory), in the adverse selection model the agent holds private information before the contract is created with the principal, whereas in the moral hazard model the agent is informed of the withheld information privately after the contract is created with the principal. </p><p>According to contract theory moral hazard results from a situation in which a hidden action occurs.<sup id="cite_ref-43" class="reference"><a href="#cite_note-43"><span class="cite-bracket">[</span>43<span class="cite-bracket">]</span></a></sup> <a href="/wiki/Bengt_Holmstr%C3%B6m" title="Bengt Holmström">Bengt Holmström</a> said this: </p> <style data-mw-deduplicate="TemplateStyles:r1244412712">.mw-parser-output .templatequote{overflow:hidden;margin:1em 0;padding:0 32px}.mw-parser-output .templatequotecite{line-height:1.5em;text-align:left;margin-top:0}@media(min-width:500px){.mw-parser-output .templatequotecite{padding-left:1.6em}}</style><blockquote class="templatequote"><p>It has long been recognized that a problem of moral hazard may arise when individuals engage in risk sharing under conditions such that their privately taken actions affect the probability distribution of the outcome.<sup id="cite_ref-44" class="reference"><a href="#cite_note-44"><span class="cite-bracket">[</span>44<span class="cite-bracket">]</span></a></sup></p></blockquote> <p>Moral hazard can be divided into two types when it involves asymmetric information (or lack of verifiability) of the outcome of a random event. An <i>ex ante</i> moral hazard is a change in behavior prior to the outcome of the random event, whereas <i>ex post</i> involves behavior after the outcome.<sup id="cite_ref-45" class="reference"><a href="#cite_note-45"><span class="cite-bracket">[</span>45<span class="cite-bracket">]</span></a></sup> For instance, in the case of a health insurance company insuring an individual during a specific time period, the final health of the individual can be thought of as the outcome. The individual taking greater risks during the period would be ex-ante moral hazard whereas lying about a fictitious health problem to defraud the insurance company would be ex post moral hazard. A second example is the case of a bank making a loan to an entrepreneur for a risky business venture. The entrepreneur becoming overly risky would be ex ante moral hazard, but willful default (wrongly claiming the venture failed when it was profitable) is ex post moral hazard. </p><p>According to Hart and Holmström (1987), moral hazard models can be subdivided in models with hidden action and models with hidden information.<sup id="cite_ref-46" class="reference"><a href="#cite_note-46"><span class="cite-bracket">[</span>46<span class="cite-bracket">]</span></a></sup> In the former case, after the contract has been signed the agent chooses an action (such as an effort level) that cannot be observed by the principal. In the latter case, after the contract has been signed there is a random draw by nature that determines the agent's type (such as his valuation for a good or his costs of effort). In the literature, two reasons have been discussed why moral hazard may imply that the first-best solution (the solution that would be attained under complete information) is not achieved. </p><p>Firstly, the agent may be risk-averse, so there is a trade-off between providing the agent with incentives and insuring the agent. Secondly, the agent may be risk-neutral but wealth-constrained and so the agent cannot make a payment to the principal and there is a trade-off between providing incentives and minimizing the agent's limited-liability rent.<sup id="cite_ref-47" class="reference"><a href="#cite_note-47"><span class="cite-bracket">[</span>47<span class="cite-bracket">]</span></a></sup> Among the early contributors to the contract-theoretic literature on moral hazard were <a href="/wiki/Oliver_Hart_(economist)" title="Oliver Hart (economist)">Oliver Hart</a> and <a href="/wiki/Sanford_J._Grossman" title="Sanford J. Grossman">Sanford J. Grossman</a>. In the meantime, the moral hazard model has been extended to the cases of multiple periods and multiple tasks, both with risk-averse and risk-neutral agents.<sup id="cite_ref-48" class="reference"><a href="#cite_note-48"><span class="cite-bracket">[</span>48<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-49" class="reference"><a href="#cite_note-49"><span class="cite-bracket">[</span>49<span class="cite-bracket">]</span></a></sup> </p><p>There are also models that combine hidden action and hidden information.<sup id="cite_ref-50" class="reference"><a href="#cite_note-50"><span class="cite-bracket">[</span>50<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-51" class="reference"><a href="#cite_note-51"><span class="cite-bracket">[</span>51<span class="cite-bracket">]</span></a></sup> Since there is no data on unobservable variables, it is quite difficult to be able to test directly the contract-theoretic moral hazard model, however there have been some successful indirect tests with field data.<sup id="cite_ref-52" class="reference"><a href="#cite_note-52"><span class="cite-bracket">[</span>52<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-53" class="reference"><a href="#cite_note-53"><span class="cite-bracket">[</span>53<span class="cite-bracket">]</span></a></sup> Direct tests of moral hazard theory are feasible in laboratory settings, using the tools of experimental economics. In such a setup, Hoppe and Schmitz (2018) have corroborated central insights of moral hazard theory.<sup id="cite_ref-54" class="reference"><a href="#cite_note-54"><span class="cite-bracket">[</span>54<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Managerial_economics">Managerial economics</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=8" title="Edit section: Managerial economics"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In the field of managerial economics, moral hazard refers to a situation in which an individual or entity engages in risky behaviour due to the knowledge that the costs associated with such behaviour will be borne by another party. This phenomenon often arises in the presence of information asymmetry, where one party possesses more information than the other. For instance, within an employment relationship, an employee may engage in risky behaviour with the understanding that any negative consequences will be absorbed by their employer. To mitigate the moral hazard, firms may implement various mechanisms such as performance-based incentives, monitoring and screening to align the interests of both parties and reduce the likelihood of risky behaviour.<sup id="cite_ref-55" class="reference"><a href="#cite_note-55"><span class="cite-bracket">[</span>55<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="See_also">See also</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=9" title="Edit section: See also"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1184024115">.mw-parser-output .div-col{margin-top:0.3em;column-width:30em}.mw-parser-output .div-col-small{font-size:90%}.mw-parser-output .div-col-rules{column-rule:1px solid #aaa}.mw-parser-output .div-col dl,.mw-parser-output .div-col ol,.mw-parser-output .div-col ul{margin-top:0}.mw-parser-output .div-col li,.mw-parser-output .div-col dd{page-break-inside:avoid;break-inside:avoid-column}</style><div class="div-col" style="column-width: 20em;"> <ul><li><a href="/wiki/Brinkmanship" title="Brinkmanship">Brinkmanship</a></li> <li><a href="/wiki/Conflict_of_interest" title="Conflict of interest">Conflict of interest</a></li> <li><a href="/wiki/Economic_inequality" title="Economic inequality">Economic inequality</a></li> <li><a href="/wiki/Feedback" title="Feedback">Feedback</a></li> <li><a href="/wiki/Free_rider_problem" class="mw-redirect" title="Free rider problem">Free rider problem</a></li> <li><a href="/wiki/Game_theory" title="Game theory">Game theory</a></li> <li><a href="/wiki/Information_economics" title="Information economics">Information economics</a></li> <li><a href="/wiki/Necropolitics" title="Necropolitics">Necropolitics</a></li> <li><a href="/wiki/Offset_hypothesis" class="mw-redirect" title="Offset hypothesis">Offset hypothesis</a></li> <li><a href="/wiki/Perverse_incentive" title="Perverse incentive">Perverse incentive</a></li> <li><a href="/wiki/Risk_compensation" title="Risk compensation">Risk compensation</a></li> <li><a href="/wiki/Samaritan%27s_dilemma" title="Samaritan's dilemma">Samaritan's dilemma</a></li> <li><a href="/wiki/Specieism" class="mw-redirect" title="Specieism">Specieism</a></li> <li><a href="/wiki/Systemic_risk" title="Systemic risk">Systemic risk</a></li> <li><a href="/wiki/Too_big_to_fail" title="Too big to fail">Too big to fail</a></li> <li><a href="/wiki/Tragedy_of_the_commons" title="Tragedy of the commons">Tragedy of the commons</a></li> <li><a href="/wiki/Unintended_consequences" title="Unintended consequences">Unintended consequences</a></li> <li><a href="/wiki/Wild_animal_suffering" title="Wild animal suffering">Wild animal suffering</a></li></ul> </div> <div class="mw-heading mw-heading2"><h2 id="References">References</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=10" title="Edit section: References"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1239543626">.mw-parser-output .reflist{margin-bottom:0.5em;list-style-type:decimal}@media screen{.mw-parser-output .reflist{font-size:90%}}.mw-parser-output .reflist .references{font-size:100%;margin-bottom:0;list-style-type:inherit}.mw-parser-output .reflist-columns-2{column-width:30em}.mw-parser-output .reflist-columns-3{column-width:25em}.mw-parser-output .reflist-columns{margin-top:0.3em}.mw-parser-output .reflist-columns ol{margin-top:0}.mw-parser-output .reflist-columns li{page-break-inside:avoid;break-inside:avoid-column}.mw-parser-output .reflist-upper-alpha{list-style-type:upper-alpha}.mw-parser-output .reflist-upper-roman{list-style-type:upper-roman}.mw-parser-output .reflist-lower-alpha{list-style-type:lower-alpha}.mw-parser-output .reflist-lower-greek{list-style-type:lower-greek}.mw-parser-output .reflist-lower-roman{list-style-type:lower-roman}</style><div class="reflist"> <div class="mw-references-wrap mw-references-columns"><ol class="references"> <li id="cite_note-1"><span class="mw-cite-backlink"><b><a href="#cite_ref-1">^</a></b></span> <span class="reference-text">Dembe, Allard E. and Boden, Leslie I. (2000). <a rel="nofollow" class="external text" href="http://baywood.metapress.com/link.asp?id=1gu8eqn802j62rxk">"Moral Hazard: A Question of Morality?"</a> New Solutions 2000 10(3). 257–79</span> </li> <li id="cite_note-Arrow_1963_941–732-2"><span class="mw-cite-backlink">^ <a href="#cite_ref-Arrow_1963_941–732_2-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-Arrow_1963_941–732_2-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text"><style data-mw-deduplicate="TemplateStyles:r1238218222">.mw-parser-output cite.citation{font-style:inherit;word-wrap:break-word}.mw-parser-output .citation q{quotes:"\"""\"""'""'"}.mw-parser-output .citation:target{background-color:rgba(0,127,255,0.133)}.mw-parser-output .id-lock-free.id-lock-free a{background:url("//upload.wikimedia.org/wikipedia/commons/6/65/Lock-green.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-limited.id-lock-limited a,.mw-parser-output .id-lock-registration.id-lock-registration a{background:url("//upload.wikimedia.org/wikipedia/commons/d/d6/Lock-gray-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-subscription.id-lock-subscription a{background:url("//upload.wikimedia.org/wikipedia/commons/a/aa/Lock-red-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .cs1-ws-icon a{background:url("//upload.wikimedia.org/wikipedia/commons/4/4c/Wikisource-logo.svg")right 0.1em center/12px no-repeat}body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-free a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-limited a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-registration a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-subscription a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .cs1-ws-icon a{background-size:contain;padding:0 1em 0 0}.mw-parser-output .cs1-code{color:inherit;background:inherit;border:none;padding:inherit}.mw-parser-output .cs1-hidden-error{display:none;color:var(--color-error,#d33)}.mw-parser-output .cs1-visible-error{color:var(--color-error,#d33)}.mw-parser-output .cs1-maint{display:none;color:#085;margin-left:0.3em}.mw-parser-output .cs1-kern-left{padding-left:0.2em}.mw-parser-output .cs1-kern-right{padding-right:0.2em}.mw-parser-output .citation .mw-selflink{font-weight:inherit}@media screen{.mw-parser-output .cs1-format{font-size:95%}html.skin-theme-clientpref-night .mw-parser-output .cs1-maint{color:#18911f}}@media screen and (prefers-color-scheme:dark){html.skin-theme-clientpref-os .mw-parser-output .cs1-maint{color:#18911f}}</style><cite id="CITEREFArrow1963" class="citation journal cs1">Arrow, Kenneth (1963). "Uncertainty and the Welfare Economics of Medical Care". <i><a href="/wiki/The_American_Economic_Review" class="mw-redirect" title="The American Economic Review">The American Economic Review</a></i>. <b>53</b> (5). American Economic Association: 941–73. <a href="/wiki/JSTOR_(identifier)" class="mw-redirect" title="JSTOR (identifier)">JSTOR</a> <a rel="nofollow" class="external text" href="https://www.jstor.org/stable/1812044">1812044</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+American+Economic+Review&rft.atitle=Uncertainty+and+the+Welfare+Economics+of+Medical+Care&rft.volume=53&rft.issue=5&rft.pages=941-73&rft.date=1963&rft_id=https%3A%2F%2Fwww.jstor.org%2Fstable%2F1812044%23id-name%3DJSTOR&rft.aulast=Arrow&rft.aufirst=Kenneth&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> <li id="cite_note-3"><span class="mw-cite-backlink"><b><a href="#cite_ref-3">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFPauly1968" class="citation journal cs1">Pauly, Mark V (1968). "The economics of moral hazard: comment". <i>The American Economic Review</i>. <b>58</b> (3). American Economic Association: 531–37. <a href="/wiki/JSTOR_(identifier)" class="mw-redirect" title="JSTOR (identifier)">JSTOR</a> <a rel="nofollow" class="external text" href="https://www.jstor.org/stable/1813785">1813785</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+American+Economic+Review&rft.atitle=The+economics+of+moral+hazard%3A+comment&rft.volume=58&rft.issue=3&rft.pages=531-37&rft.date=1968&rft_id=https%3A%2F%2Fwww.jstor.org%2Fstable%2F1813785%23id-name%3DJSTOR&rft.aulast=Pauly&rft.aufirst=Mark+V&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> <li id="cite_note-:0-4"><span class="mw-cite-backlink"><b><a href="#cite_ref-:0_4-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFFINKELSTEINARROWGRUBERNEWHOUSE2015" class="citation book cs1">FINKELSTEIN, AMY; ARROW, KENNETH J.; GRUBER, JONATHAN; NEWHOUSE, JOSEPH P.; STIGLITZ, JOSEPH E. 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Columbia University Press. <a href="/wiki/Doi_(identifier)" class="mw-redirect" title="Doi (identifier)">doi</a>:<a rel="nofollow" class="external text" href="https://doi.org/10.7312%2Ffink16380">10.7312/fink16380</a>. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/9780231538688" title="Special:BookSources/9780231538688"><bdi>9780231538688</bdi></a>. <a href="/wiki/JSTOR_(identifier)" class="mw-redirect" title="JSTOR (identifier)">JSTOR</a> <a rel="nofollow" class="external text" href="https://www.jstor.org/stable/10.7312/fink16380">10.7312/fink16380</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Moral+Hazard+in+Health+Insurance&rft.pub=Columbia+University+Press&rft.date=2015&rft_id=https%3A%2F%2Fwww.jstor.org%2Fstable%2F10.7312%2Ffink16380%23id-name%3DJSTOR&rft_id=info%3Adoi%2F10.7312%2Ffink16380&rft.isbn=9780231538688&rft.aulast=FINKELSTEIN&rft.aufirst=AMY&rft.au=ARROW%2C+KENNETH+J.&rft.au=GRUBER%2C+JONATHAN&rft.au=NEWHOUSE%2C+JOSEPH+P.&rft.au=STIGLITZ%2C+JOSEPH+E.&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> <li id="cite_note-5"><span class="mw-cite-backlink"><b><a href="#cite_ref-5">^</a></b></span> <span class="reference-text">D Rowell, LB Connelly (2012) "A history of the term 'moral hazard'" Journal of Risk and Insurance 79 (4), 1051–75</span> </li> <li id="cite_note-nyt080907-6"><span class="mw-cite-backlink">^ <a href="#cite_ref-nyt080907_6-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-nyt080907_6-1"><sup><i><b>b</b></i></sup></a> <a href="#cite_ref-nyt080907_6-2"><sup><i><b>c</b></i></sup></a></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFLowenstein2008" class="citation news cs1"><a href="/wiki/Roger_Lowenstein" title="Roger Lowenstein">Lowenstein, Roger</a> (September 6, 2008). <a rel="nofollow" class="external text" href="https://web.archive.org/web/20181120015201/https://www.nytimes.com/2008/09/07/business/07ltcm.html">"Long-Term Capital: It's a Short-Term Memory"</a>. <i>The New York Times</i>. Archived from the original on November 20, 2018<span class="reference-accessdate">. Retrieved <span class="nowrap">November 19,</span> 2018</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+New+York+Times&rft.atitle=Long-Term+Capital%3A+It%27s+a+Short-Term+Memory&rft.date=2008-09-06&rft.aulast=Lowenstein&rft.aufirst=Roger&rft_id=https%3A%2F%2Fwww.nytimes.com%2F2008%2F09%2F07%2Fbusiness%2F07ltcm.html&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span><span class="cs1-maint citation-comment"><code class="cs1-code">{{<a href="/wiki/Template:Cite_news" title="Template:Cite news">cite news</a>}}</code>: CS1 maint: bot: original URL status unknown (<a href="/wiki/Category:CS1_maint:_bot:_original_URL_status_unknown" title="Category:CS1 maint: bot: original URL status unknown">link</a>)</span></span> </li> <li id="cite_note-nr081229-7"><span class="mw-cite-backlink">^ <a href="#cite_ref-nr081229_7-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-nr081229_7-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFNoam_Scheiber2008" class="citation magazine cs1"><a href="/wiki/Noam_Scheiber" title="Noam Scheiber">Noam Scheiber</a> (December 29, 2008). <a rel="nofollow" class="external text" href="https://newrepublic.com/article/46760/long-term-capital-blame-todays-crisis">"Is Long-term Capital To Blame For Today's Crisis?"</a>. <i>The New Republic</i>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+New+Republic&rft.atitle=Is+Long-term+Capital+To+Blame+For+Today%27s+Crisis%3F&rft.date=2008-12-29&rft.au=Noam+Scheiber&rft_id=https%3A%2F%2Fnewrepublic.com%2Farticle%2F46760%2Flong-term-capital-blame-todays-crisis&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> <li id="cite_note-8"><span class="mw-cite-backlink"><b><a href="#cite_ref-8">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFJohn_Authors2008" class="citation news cs1">John Authors (September 15, 2008). <a rel="nofollow" class="external text" href="https://ghostarchive.org/archive/20221210/https://www.ft.com/content/aced684c-834e-11dd-907e-000077b07658">"The Short View: Moral hazard"</a>. <i>Financial Times</i>. Archived from <span class="id-lock-subscription" title="Paid subscription required"><a rel="nofollow" class="external text" href="https://www.ft.com/content/aced684c-834e-11dd-907e-000077b07658">the original</a></span> on December 10, 2022.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Financial+Times&rft.atitle=The+Short+View%3A+Moral+hazard&rft.date=2008-09-15&rft.au=John+Authors&rft_id=https%3A%2F%2Fwww.ft.com%2Fcontent%2Faced684c-834e-11dd-907e-000077b07658&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> <li id="cite_note-9"><span class="mw-cite-backlink"><b><a href="#cite_ref-9">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://www.gao.gov/archive/2000/gg00067r.pdf">GAO/GGD-00-67R Questions Concerning LTCM and Our Responses</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20120419060858/http://www.gao.gov/archive/2000/gg00067r.pdf">Archived</a> April 19, 2012, at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a> General Accounting Office, February 23, 2000</span> </li> <li id="cite_note-10"><span class="mw-cite-backlink"><b><a href="#cite_ref-10">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFJeffrey_Tucker1998" class="citation web cs1"><a href="/wiki/Jeffrey_Tucker" title="Jeffrey Tucker">Jeffrey Tucker</a> (December 1, 1998). <a rel="nofollow" class="external text" href="https://mises.org/library/mr-moral-hazard">"Mr. Moral Hazard"</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Mr.+Moral+Hazard&rft.date=1998-12-01&rft.au=Jeffrey+Tucker&rft_id=https%3A%2F%2Fmises.org%2Flibrary%2Fmr-moral-hazard&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> <li id="cite_note-Krugman_2009-11"><span class="mw-cite-backlink"><b><a href="#cite_ref-Krugman_2009_11-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFKrugman2009" class="citation book cs1">Krugman, Paul (2009). <a href="/wiki/The_Return_of_Depression_Economics_and_the_Crisis_of_2008" title="The Return of Depression Economics and the Crisis of 2008"><i>The Return of Depression Economics and the Crisis of 2008</i></a>. 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Norton Company Limited. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-393-07101-6" title="Special:BookSources/978-0-393-07101-6"><bdi>978-0-393-07101-6</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=The+Return+of+Depression+Economics+and+the+Crisis+of+2008&rft.pub=W.W.+Norton+Company+Limited&rft.date=2009&rft.isbn=978-0-393-07101-6&rft.aulast=Krugman&rft.aufirst=Paul&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> <li id="cite_note-12"><span class="mw-cite-backlink"><b><a href="#cite_ref-12">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFSummers2007" class="citation news cs1">Summers, Lawrence (September 23, 2007). <span class="id-lock-subscription" title="Paid subscription required"><a rel="nofollow" class="external text" href="https://www.ft.com/cms/s/0/5ffd2606-69e8-11dc-a571-0000779fd2ac.html">"Beware moral hazard fundamentalists"</a></span>. <i><a href="/wiki/Financial_Times" title="Financial Times">Financial Times</a></i>. <a rel="nofollow" class="external text" href="https://ghostarchive.org/archive/20221210/http://www.ft.com/cms/s/0/5ffd2606-69e8-11dc-a571-0000779fd2ac.html">Archived</a> from the original on December 10, 2022<span class="reference-accessdate">. Retrieved <span class="nowrap">January 15,</span> 2008</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Financial+Times&rft.atitle=Beware+moral+hazard+fundamentalists&rft.date=2007-09-23&rft.aulast=Summers&rft.aufirst=Lawrence&rft_id=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F5ffd2606-69e8-11dc-a571-0000779fd2ac.html&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> <li id="cite_note-13"><span class="mw-cite-backlink"><b><a href="#cite_ref-13">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFBrown2008" class="citation web cs1">Brown, Bill (November 19, 2008). <a rel="nofollow" class="external text" href="http://www.marketwatch.com/news/story/story.aspx?guid={9F4C2252-8BA7-459C-B34E-407DB32921C1}&siteid=rss">"Uncle Sam as sugar daddy"</a>. <i>MarketWatch</i><span class="reference-accessdate">. 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SSRN.com. <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1321666">1321666</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.atitle=Common+%28Stock%29+Sense+about+Risk-Shifting+and+Bank+Bailouts&rft.date=2009-12-29&rft_id=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D1321666%23id-name%3DSSRN&rft.aulast=Wu&rft.aufirst=Yan+Wendy&rft.au=Wilson%2C+Linus&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span> <span class="cs1-visible-error citation-comment"><code class="cs1-code">{{<a href="/wiki/Template:Cite_journal" title="Template:Cite journal">cite journal</a>}}</code>: </span><span class="cs1-visible-error citation-comment">Cite journal requires <code class="cs1-code">|journal=</code> (<a href="/wiki/Help:CS1_errors#missing_periodical" title="Help:CS1 errors">help</a>)</span></span> </li> <li id="cite_note-15"><span class="mw-cite-backlink"><b><a href="#cite_ref-15">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFWilson2009" class="citation journal cs1">Wilson, Linus (February 2, 2009). 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SSRN.com. <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1336288">1336288</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.atitle=Debt+Overhang+and+Bank+Bailouts&rft.date=2009-02-02&rft_id=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D1336288%23id-name%3DSSRN&rft.aulast=Wilson&rft.aufirst=Linus&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span> <span class="cs1-visible-error citation-comment"><code class="cs1-code">{{<a href="/wiki/Template:Cite_journal" title="Template:Cite journal">cite journal</a>}}</code>: </span><span class="cs1-visible-error citation-comment">Cite journal requires <code class="cs1-code">|journal=</code> (<a href="/wiki/Help:CS1_errors#missing_periodical" title="Help:CS1 errors">help</a>)</span></span> </li> <li id="cite_note-16"><span class="mw-cite-backlink"><b><a href="#cite_ref-16">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFZandi2009" class="citation book cs1">Zandi, Mark (2009). <span class="id-lock-registration" title="Free registration required"><a rel="nofollow" class="external text" href="https://archive.org/details/financialshockgl00zand"><i>Financial Shock</i></a></span>. FT Press. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-13-701663-1" title="Special:BookSources/978-0-13-701663-1"><bdi>978-0-13-701663-1</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Financial+Shock&rft.pub=FT+Press&rft.date=2009&rft.isbn=978-0-13-701663-1&rft.aulast=Zandi&rft.aufirst=Mark&rft_id=https%3A%2F%2Farchive.org%2Fdetails%2Ffinancialshockgl00zand&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> <li id="cite_note-17"><span class="mw-cite-backlink"><b><a href="#cite_ref-17">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFHolden_Lewis2007" class="citation web cs1">Holden Lewis (April 18, 2007). <a rel="nofollow" class="external text" href="http://www.bankrate.com/brm/news/mortgages/20070418_subprime_mortgage_morality_a1.asp?caret=3c">"<span class="cs1-kern-left"></span>'Moral hazard' helps shape mortgage mess"</a>. 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American Academy of Political and Social Science: 224–38. <a href="/wiki/Doi_(identifier)" class="mw-redirect" title="Doi (identifier)">doi</a>:<a rel="nofollow" class="external text" href="https://doi.org/10.1177%2F000271620502600215">10.1177/000271620502600215</a>. <a href="/wiki/JSTOR_(identifier)" class="mw-redirect" title="JSTOR (identifier)">JSTOR</a> <a rel="nofollow" class="external text" href="https://www.jstor.org/stable/1011015">1011015</a>. <a href="/wiki/S2CID_(identifier)" class="mw-redirect" title="S2CID (identifier)">S2CID</a> <a rel="nofollow" class="external text" href="https://api.semanticscholar.org/CorpusID:220837165">220837165</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Annals+of+the+American+Academy+of+Political+and+Social+Science&rft.atitle=Fire+Prevention&rft.volume=26&rft.issue=2&rft.pages=224-38&rft.date=1905&rft_id=https%3A%2F%2Fapi.semanticscholar.org%2FCorpusID%3A220837165%23id-name%3DS2CID&rft_id=https%3A%2F%2Fwww.jstor.org%2Fstable%2F1011015%23id-name%3DJSTOR&rft_id=info%3Adoi%2F10.1177%2F000271620502600215&rft.aulast=Crosby&rft.aufirst=Everett&rft_id=https%3A%2F%2Fzenodo.org%2Frecord%2F1448646&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span> Crosby was one of the founders of the <a href="/wiki/National_Fire_Protection_Association" title="National Fire Protection Association">National Fire Protection Association</a>, <a rel="nofollow" class="external text" href="http://www.nfpa.org/itemDetail.asp?categoryID=500&itemID=18020&URL=About%20Us/History">NFPA.org</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20070928060123/http://www.nfpa.org/itemDetail.asp?categoryID=500&itemID=18020&URL=About%20Us%2FHistory">Archived</a> 2007-09-28 at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a></span> </li> <li id="cite_note-35"><span class="mw-cite-backlink"><b><a href="#cite_ref-35">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFArrow1965" class="citation book cs1">Arrow, Kenneth (1965). <i>Aspects of the Theory of Risk Bearing</i>. 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(January 1989). <a rel="nofollow" class="external text" href="https://journals.aom.org/doi/abs/10.5465/amr.1989.4279003">"Agency Theory: An Assessment and Review"</a>. <i>The Academy of Management Review</i>. <b>14</b> (1): 57–74. <a href="/wiki/Doi_(identifier)" class="mw-redirect" title="Doi (identifier)">doi</a>:<a rel="nofollow" class="external text" href="https://doi.org/10.2307%2F258191">10.2307/258191</a>. <a href="/wiki/JSTOR_(identifier)" class="mw-redirect" title="JSTOR (identifier)">JSTOR</a> <a rel="nofollow" class="external text" href="https://www.jstor.org/stable/258191">258191</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+Academy+of+Management+Review&rft.atitle=Agency+Theory%3A+An+Assessment+and+Review&rft.volume=14&rft.issue=1&rft.pages=57-74&rft.date=1989-01&rft_id=info%3Adoi%2F10.2307%2F258191&rft_id=https%3A%2F%2Fwww.jstor.org%2Fstable%2F258191%23id-name%3DJSTOR&rft.aulast=Eisenhardt&rft.aufirst=Kathleen+M.&rft_id=https%3A%2F%2Fjournals.aom.org%2Fdoi%2Fabs%2F10.5465%2Famr.1989.4279003&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></span> </li> </ol></div></div> <div class="mw-heading mw-heading2"><h2 id="External_links">External links</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Moral_hazard&action=edit&section=11" title="Edit section: External links"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFDewan2012" class="citation news cs1">Dewan, Shaila (February 26, 2012). <a rel="nofollow" class="external text" href="https://www.nytimes.com/2012/02/26/business/moral-hazard-as-the-flip-side-of-self-reliance.html">"Moral Hazard: A Tempest-Tossed Idea"</a>. <i><a href="/wiki/The_New_York_Times" title="The New York Times">The New York Times</a></i>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+New+York+Times&rft.atitle=Moral+Hazard%3A+A+Tempest-Tossed+Idea&rft.date=2012-02-26&rft.aulast=Dewan&rft.aufirst=Shaila&rft_id=https%3A%2F%2Fwww.nytimes.com%2F2012%2F02%2F26%2Fbusiness%2Fmoral-hazard-as-the-flip-side-of-self-reliance.html&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFGladwell2005" class="citation magazine cs1">Gladwell, Malcolm (August 29, 2005). <a rel="nofollow" class="external text" href="http://www.newyorker.com/archive/2005/08/29/050829fa_fact">"The Moral Hazard Myth"</a>. <i>The New Yorker</i>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+New+Yorker&rft.atitle=The+Moral+Hazard+Myth&rft.date=2005-08-29&rft.aulast=Gladwell&rft.aufirst=Malcolm&rft_id=http%3A%2F%2Fwww.newyorker.com%2Farchive%2F2005%2F08%2F29%2F050829fa_fact&rfr_id=info%3Asid%2Fen.wikipedia.org%3AMoral+hazard" class="Z3988"></span></li> <li><a rel="nofollow" class="external text" href="http://paq.press.illinois.edu/23/1/hale.html">"What's so Moral about the Moral Hazard?"</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20160416122409/http://paq.press.illinois.edu/23/1/hale.html">Archived</a> April 16, 2016, at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a>. Press.illinois.edu</li> <li><a rel="nofollow" class="external text" href="https://www.pbs.org/wgbh/pages/frontline/meltdown/view/">"Inside the Meltdown"</a>, PBS's <i><a href="/wiki/Frontline_(U.S._TV_series)" class="mw-redirect" title="Frontline (U.S. TV series)">Frontline</a></i> episode uses the idea as a central theme</li></ul> <div class="navbox-styles"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><style data-mw-deduplicate="TemplateStyles:r1236075235">.mw-parser-output .navbox{box-sizing:border-box;border:1px solid #a2a9b1;width:100%;clear:both;font-size:88%;text-align:center;padding:1px;margin:1em auto 0}.mw-parser-output .navbox .navbox{margin-top:0}.mw-parser-output .navbox+.navbox,.mw-parser-output .navbox+.navbox-styles+.navbox{margin-top:-1px}.mw-parser-output .navbox-inner,.mw-parser-output .navbox-subgroup{width:100%}.mw-parser-output .navbox-group,.mw-parser-output .navbox-title,.mw-parser-output .navbox-abovebelow{padding:0.25em 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risk</a></li> <li><a href="/wiki/Foreign_exchange_risk" title="Foreign exchange risk">FX risk</a></li> <li><a href="/wiki/Margining_risk" title="Margining risk">Margining risk</a></li> <li><a href="/wiki/Interest_rate_risk" title="Interest rate risk">Interest rate risk</a></li> <li><a href="/wiki/Inflation_risk" class="mw-redirect" title="Inflation risk">Inflation risk</a></li> <li><a href="/wiki/Volatility_risk" title="Volatility risk">Volatility risk</a></li> <li><a href="/wiki/Liquidity_risk" title="Liquidity risk">Liquidity risk</a> (e.g. <a href="/wiki/Refinancing_risk" title="Refinancing risk">Refinancing risk</a>, <a href="/wiki/Deposit_risk" title="Deposit risk">Deposit risk</a>)</li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Operational_risk" title="Operational risk">Operational risk</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a 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risk</a></li> <li><a href="/wiki/Systemic_risk" title="Systemic risk">Systemic risk</a></li> <li><a href="/wiki/Non-financial_risk" title="Non-financial risk">Non-financial risk</a></li></ul> </div></td></tr></tbody></table><div></div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Financial_risk_modeling" title="Financial risk modeling">Modeling</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Arbitrage_pricing_theory" title="Arbitrage pricing theory">Arbitrage pricing theory</a></li> <li><a href="/wiki/Black%E2%80%93Scholes_model" title="Black–Scholes model">Black–Scholes model</a></li> <li><a href="/wiki/Replicating_portfolio" title="Replicating portfolio">Replicating portfolio</a></li> <li><a href="/wiki/Cashflow_matching" title="Cashflow matching">Cash flow matching</a></li> <li><a href="/wiki/Expected_shortfall" title="Expected shortfall">Conditional Value-at-Risk (CVaR)</a></li> <li><a href="/wiki/Copula_(probability_theory)" class="mw-redirect" title="Copula (probability theory)">Copula</a></li> <li><a href="/wiki/Drawdown_(economics)" title="Drawdown (economics)">Drawdown</a></li> <li><a href="/wiki/First-hitting-time_model" title="First-hitting-time model">First-hitting-time model</a></li> <li><a href="/wiki/Immunization_(finance)" title="Immunization (finance)">Interest rate immunization</a></li> <li><a href="/wiki/Market_portfolio" title="Market portfolio">Market portfolio</a></li> <li><a href="/wiki/Modern_portfolio_theory" title="Modern portfolio theory">Modern portfolio theory</a></li> <li><a href="/wiki/Omega_ratio" title="Omega ratio">Omega ratio</a></li> <li><a href="/wiki/Risk-adjusted_return_on_capital" title="Risk-adjusted return on capital">RAROC</a></li> <li><a href="/wiki/Risk-free_interest_rate" class="mw-redirect" title="Risk-free interest rate">Risk-free rate</a></li> <li><a href="/wiki/Risk_parity" title="Risk parity">Risk parity</a></li> <li><a href="/wiki/Sharpe_ratio" title="Sharpe ratio">Sharpe ratio</a></li> <li><a href="/wiki/Sortino_ratio" title="Sortino ratio">Sortino ratio</a></li> <li><a href="/wiki/Survival_analysis" title="Survival analysis">Survival analysis</a> (<a href="/wiki/Proportional_hazards_model" title="Proportional hazards model">Proportional hazards model</a>)</li> <li><a href="/wiki/Tracking_error" title="Tracking error">Tracking error</a></li> <li><a href="/wiki/Value_at_risk" title="Value at risk">Value-at-Risk (VaR)</a> and extensions (<a href="/wiki/Profit_at_risk" title="Profit at risk">Profit at risk</a>, <a href="/wiki/Margin_at_risk" title="Margin at risk">Margin at risk</a>, <a href="/wiki/Liquidity_at_risk" title="Liquidity at risk">Liquidity at risk</a>, <a href="/wiki/Cash_flow_at_risk" class="mw-redirect" title="Cash flow at risk">Cash flow at risk</a>, <a href="/wiki/Earnings_at_risk" title="Earnings at risk">Earnings at risk</a>)</li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Basic concepts</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Asset_allocation" title="Asset allocation">Asset allocation</a></li> <li><a href="/wiki/Asset_and_liability_management" title="Asset and liability management">Asset and liability management</a></li> <li><a href="/wiki/Asset_pricing" title="Asset pricing">Asset pricing</a></li> <li><a href="/wiki/Bad_debt" title="Bad debt">Bad debt</a></li> <li><a href="/wiki/Capital_asset" title="Capital asset">Capital asset</a></li> <li><a href="/wiki/Capital_structure" title="Capital structure">Capital structure</a></li> <li><a href="/wiki/Corporate_finance" title="Corporate finance">Corporate finance</a></li> <li><a href="/wiki/Cost_of_capital" title="Cost of capital">Cost of capital</a></li> <li><a href="/wiki/Diversification_(finance)" title="Diversification (finance)">Diversification</a></li> <li><a href="/wiki/Economic_bubble" title="Economic bubble">Economic bubble</a></li> <li><a href="/wiki/Enterprise_value" title="Enterprise value">Enterprise value</a></li> <li><a href="/wiki/Environmental,_social,_and_governance" title="Environmental, social, and governance">ESG</a></li> <li><a href="/wiki/Exchange_traded_fund" class="mw-redirect" title="Exchange traded fund">Exchange traded fund</a></li> <li><a href="/wiki/Expected_return" title="Expected return">Expected return</a></li> <li><a href="/wiki/Finance" title="Finance">Financial</a> <ul><li><a href="/wiki/Financial_adviser" title="Financial adviser">adviser</a></li> <li><a href="/wiki/Financial_analysis" title="Financial analysis">analysis</a></li> <li><a href="/wiki/Financial_analyst" title="Financial analyst">analyst</a></li> <li><a href="/wiki/Financial_asset" title="Financial asset">asset</a></li> <li><a href="/wiki/Financial_betting" title="Financial betting">betting</a></li> <li><a href="/wiki/Financial_crime" title="Financial crime">crime</a></li> <li><a href="/wiki/Financial_engineering" title="Financial engineering">engineering</a></li> <li><a href="/wiki/Financial_law" title="Financial law">law</a></li> <li><a href="/wiki/Financial_risk" title="Financial risk">risk</a></li> <li><a href="/wiki/Financial_social_work" title="Financial social work">social work</a></li></ul></li> <li><a href="/wiki/Fundamental_analysis" title="Fundamental analysis">Fundamental analysis</a></li> <li><a href="/wiki/Growth_investing" title="Growth investing">Growth investing</a></li> <li><a href="/wiki/Hazard" title="Hazard">Hazard</a></li> <li><a href="/wiki/Hedge_(finance)" title="Hedge (finance)">Hedge</a></li> <li><a href="/wiki/Investment_management" title="Investment management">Investment management</a></li> <li><a href="/wiki/Risk" title="Risk">Risk</a></li> <li><a href="/wiki/Risk_pool" title="Risk pool">Risk pool</a></li> <li><a href="/wiki/Risk_of_ruin" title="Risk of ruin">Risk of ruin</a></li> <li><a href="/wiki/Systematic_risk" title="Systematic risk">Systematic risk</a></li> <li><a href="/wiki/Mathematical_finance" title="Mathematical finance">Mathematical finance</a></li> <li><a class="mw-selflink selflink">Moral hazard</a></li> <li><a href="/wiki/Risk-return_spectrum" class="mw-redirect" title="Risk-return spectrum">Risk-return spectrum</a></li> <li><a href="/wiki/Speculation" title="Speculation">Speculation</a></li> <li><a href="/wiki/Speculative_attack" title="Speculative attack">Speculative attack</a></li> <li><a href="/wiki/Statistical_finance" title="Statistical finance">Statistical finance</a></li> <li><a href="/wiki/Strategic_financial_management" title="Strategic financial management">Strategic financial management</a></li> <li><a href="/wiki/Stress_test_(financial)" title="Stress test (financial)">Stress test (financial)</a></li> <li><a href="/wiki/Structured_finance" title="Structured finance">Structured finance</a></li> <li><a href="/wiki/Structured_product" title="Structured product">Structured product</a></li> <li><a href="/wiki/Systemic_risk" title="Systemic risk">Systemic risk</a></li> <li><a href="/wiki/Toxic_asset" title="Toxic asset">Toxic asset</a></li></ul> </div></td></tr><tr><td class="navbox-abovebelow" colspan="2"><div> <ul><li><a href="/wiki/Financial_economics" title="Financial economics">Financial economics</a></li> <li><a href="/wiki/Investment_management" title="Investment management">Investment management</a></li> <li><a href="/wiki/Mathematical_finance" title="Mathematical finance">Mathematical finance</a></li></ul> </div></td></tr></tbody></table></div> <div class="navbox-styles"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236075235"><style 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