Briefly define moral hazard

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Question - Please answer the questions in order. Please do not combine the answers.

1. Briefly define moral hazard. Why does moral hazard arise in contractual situations?

2. Give an example of moral hazard.

3. "Too big to fail" corporations and banks might engage in actions that increase the likelihood of financial distress. Would you consider this a moral hazard situation? Why or why not?

4. How is asymmetric information related to moral hazard and agency conflict?

5. Briefly describe the agency conflict between shareholders and management.

6. What actions can the principal take to mitigate the agency conflict? Are these actions costly?

7. Which institutions perform monitoring of corporate management at publicly listed corporations and banks?

Reference no: EM133179968

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