Final answer:
In the presence of moral hazard, we can expect inefficient outcomes due to individuals engaging in riskier behavior when part of the risk is covered by insurance. Deductibles, copayments, and coinsurance are mechanisms that help reduce moral hazard by making insured parties financially responsible for a part of their risks.
Step-by-step explanation:
In the context of insurance and economic theory, moral hazard refers to the situation where the presence of insurance leads an individual to take higher risks because the negative consequences of such risks are partly borne by the insurance company. Therefore, the correct answer to the question would be '3) Inefficient outcomes,' because moral hazard can lead to behavior that results in less optimal or inefficient outcomes. The presence of moral hazard makes it difficult for insurance companies to set efficient prices because they cannot perfectly monitor all the risks that insured parties take, and as a result, they may have to raise premiums in general to cover the costs of riskier behavior by some insured parties.
Insurance mechanisms like deductibles, copayments, and coinsurance reduce moral hazard by ensuring that the insured party bears a portion of the risk. A deductible is a fixed amount that the insured must pay before insurance begins to cover the costs, a copayment is a fixed amount the insured pays for a covered service, and coinsurance is a percentage of the cost for a service that the insured pays.