Moral hazard
TheoryDefinition
When a party can take risks because someone else bears the cost. Famous in banking: implicit "too big to fail" guarantees encourage risk-taking. In insurance: insured drivers may be marginally less careful than uninsured ones.
2008 bailouts deepened moral hazard concerns. Dodd-Frank attempted to mitigate via living wills and stress tests; whether it succeeded is debated.
2008 bailouts deepened moral hazard concerns. Dodd-Frank attempted to mitigate via living wills and stress tests; whether it succeeded is debated.