Moral Hazad in Organizations(清华大学,王一江).docVIP

Moral Hazard in Organizations 1. The nature of the moral hazard problem and the conditions for it to arise. Moral hazard is a post-contractual problem. It arises whenever a party breaches a contract clause (not honoring what one has promised to do in the contract). The problem can be nick named “cheating”. For the moral hazard problem to arise, the following conditions must exist The parties have selfish motivations and there are conflicting interests between or among the parties involved. So when one party takes an action to advance his private interest, it harms the other party’