Question

Solutions to the moral hazard problem include

a. high net worth.
b. monitoring and enforcement of restrictive covenants.
c. greater reliance on equity contracts and less on debt contracts.
d. all of the above.
e. only A and B of the above.

Answer 1

Solutions to the moral hazard problem include high net worth, monitoring and enforcement of restrictive covenants, and greater reliance on equity contracts and less on debt contracts.

Step-by-step explanation:

Solutions to the moral hazard problem include:

1. High net worth
2. Monitoring and enforcement of restrictive covenants
3. Greater reliance on equity contracts and less on debt contracts

These solutions help mitigate the moral hazard problem by reducing the incentives for individuals or businesses to engage in riskier behavior when they have insurance coverage. For example, individuals with high net worth may have more at stake, making them less likely to take excessive risks.