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

The cost of this moral hazard to the U.S. is already evident. —Charles Walldorf, The Conversation, 3 Oct. 2024

So, what would mitigate this geopolitical moral hazard? —Charles Walldorf, The Conversation, 3 Oct. 2024

Political scientists have a term that covers this phenomenon: moral hazard. —Charles Walldorf, The Conversation, 3 Oct. 2024

Evidence from the temporary UI boosts challenged the conventional wisdom around moral hazard. —Oshan Jarow, Vox, 26 June 2024

Word History

First Known Use

1861, in the meaning defined above

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)