Answer
Moral hazard refers to a situation in which one party, typically in a contractual or financial arrangement, takes excessive risks or acts irresponsibly because they are shielded from the negative consequences of their actions. This occurs when one party can pass on the risks or costs to another party. In essence, moral hazard arises when a lack of accountability encourages reckless behavior, as the party taking the risks does not bear the full burden of potential losses. It is often associated with situations involving insurance, financial markets, and lending, where one party may engage in riskier behavior due to the assumption that another party will absorb the consequences.
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