Moral hazard is a concept in economics and finance that refers to the risk that a party to a transaction has not entered into the agreement in good faith, or has provided misleading information about its assets, liabilities, or other relevant information. It is a type of risk that arises
In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it will not bear the full costs associated with that risk. For example, when a corporation is insured, it may take on higher risk knowing that its insurance will pay the associated costs. A moral hazard may occur where the actions of the risk-taking party change to the detriment of the cost-bearing party after a financial transaction has taken place.