Describe moral hazard.

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Part 1

Select the best description for moral hazard.

A.

Situations in which an employee prefers to exert less effort compared with the effort desired by the owner because the employee's effort cannot be accurately monitored and enforced.

B.

A situation where the company does not plan or budget for each responsibility center, instead, they plan and budget only for cost centers.

C.

Moral hazard occurs only in situations such as: taking company items for personal use (pens, paper, etc.) and taking an extra 5 minutes at break time.

D.

Situations where the mission, purpose, and core values of a company are not articulated. In other words, the accepted norms and patterns of behavior expected of everyone with respect to one another, shareholders, customers, and communities.