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Finance Dictionary and Glossary of Investment Terms
Moral Hazard
Definition 1.
The chance that a contract will change the risk-taking behavior of one or both of the involved parties.
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Definition 2.
The risk that the existence of a contract will change the behavior of one or both parties to the contract, e.g., an insured firm will take fewer fire precautions.
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Definition 3.
The risk that the presence of a contract will affect on the behavior of one or more parties. The classic example is in the insurance industry, where coverage against a loss might increase the risk-taking behavior of the insured.
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