moral hazard

noun

plural moral hazards
: a situation in which a party is incentivized to risk causing harm because another party is obligated to remedy the consequences of the harm caused
Patricia A. McCoy, a professor at Boston College of Law, said that during the financial crisis of 2008, the cap on deposit insurance was lifted under the Transaction Account Guarantee Program for most banks, and the suspension remained in place until the end of 2010. … Ms. McCoy said regulators and lawmakers need to be careful about permanently raising or eliminating the deposit cap as it can encourage unnecessary risk taking. "Every time this happens it increases the potential for moral hazard going forward," Ms. McCoy said.Matthew Goldstein
specifically : the possibility of loss to an insurance company arising from the character or circumstances of the insured

Examples of moral hazard in a Sentence

Recent Examples on the Web These are two independent points, the scientific phenomenon of accessible DNA testing and the moral hazard of hiding a person from her family. Carolyn Hax, Washington Post, 28 Jan. 2024 Why did the government apparently throw out concerns about moral hazard when SVB failed? Cassandra Jones Havard, Fortune, 21 Mar. 2023 Excessive capital requirements would harm smaller banks more than larger ones, while reducing the demand for liquidity by increasing the amount of deposit insurance would create serious moral hazard. Solving such a complex problem requires a fresh look at deposit insurance. Thomas D. Lehrman and Randal K. Quarles, WSJ, 13 Dec. 2023 And the moral hazard remains of profligate countries in the zone piggybacking on frugal ones. Iese Business School, Forbes, 29 Nov. 2023 The cost-benefit equation doesn’t account for moral hazard, either. Daniel A. Gross, The New Yorker, 5 Nov. 2023 Meanwhile, recent world events are mitigating the concerns about moral hazard that, up to now, have discouraged even research into geoengineering. Robert Litan, Foreign Affairs, 26 Oct. 2022 In the long run, the moral hazard effects of the new IDR plan will be more consequential than the one-time student loan forgiveness which the Supreme Court struck down. Preston Cooper, Forbes, 17 July 2023 But these government rescues at the very least create moral hazard, and at worst don’t work. Justin Muzinich, WSJ, 1 Mar. 2023

These examples are programmatically compiled from various online sources to illustrate current usage of the word 'moral hazard.' Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. Send us feedback about these examples.

Word History

First Known Use

1861, in the meaning defined above

Time Traveler
The first known use of moral hazard was in 1861

Dictionary Entries Near moral hazard

Cite this Entry

“Moral hazard.” Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/moral%20hazard. Accessed 18 Apr. 2024.

Legal Definition

moral hazard

noun
1
: the possibility of loss to an insurance company (as by arson) arising from the character or circumstances of the insured
deductibles decrease moral hazard
2
: the likelihood of investors to take greater risks because of the knowledge that losses incurred as a result of those risks will be covered by another (as a government)

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