Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 22 - Part VII - Frontiers of Microeconomics - Questions for Review - Page 478: 1

Answer

Moral hazard is when a person is not perfectly monitored is likely to participate in a dishonest or otherwise undesirable behavior.

Work Step by Step

Employers could better monitor their employees with hidden video cameras. Higher wages could be paid to incentivize less shirking of work. Delaying payment of a bonus can also incentivize workers to not shirk (since shirking would cause the employee to lose a large bonus at the end of a time period).
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