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Enrollment problems was incentivized by board

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The president of a university with enrollment problems was incentivized by her board of trustees to improve the situation. If headcount enrollment increased by 5% or more, she would receive a $50,000 one-time bonus payment. Lo and behold, enrollment subsequently increased by 5.1% and the board paid up. Later, after the president had departed, the board learned that the president had decreased the budget of the library and transferred personnel from other administrative offices to generate the enrollment increase. Is this an example of moral hazard? Why or why not? In general, what can decision-makers do to avoid or avert such situations?

Reference no: EM133302466

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