Moral Hazard, meaning, definition, examples

moral hazard
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It is the risk concept related to the attitude and habits of the insured. On the insurance thing, the person who has an insurable interest or third parties. In connection with the risk involved or the possibility of increasing the severity of the damage affects the damage of bringing that condition or behavior. An example of a moral danger is the lack of care shown in preventing damage or reducing the cost of damage, or the excess of claims for damage in previous circuits as quantity and quantity.

So what does the employer do in the face of moral risk? Removes the fixed fee he has given to his workers; instead, he fixes a contract to which wages are determined according to the sale made to the workers. as such, the interests of the worker and the employee are aligned. If the worker sells a lot, he wins and the boss wins.

Is that an ideal outcome? I’m afraid not. as we say, sales can vary depending on the employee’s chances. That means that the money that the worker could bring home that week is tied to the sales. but the expenses of the worker, such as house rent, electricity bills, kitchen costs, Children’s school installments, are more or less fixed. Therefore, the worker would prefer a fixed week to know his account. The sales-related wage system puts an extra risk on the worker. However, the ideal is to undertake the risk by the employer. Because many workers are interested in the total sales of the employer; he is not affected by the risk of individual sales, which is one hundred percent of individual workers.

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