Final answer:
Moral hazard in relation to workers' compensation refers to an increase in riskier behaviors amongst workers who might rely on the insurance to cover injuries sustained from such behavior. This phenomenon illustrates how insurance can inadvertently encourage risk-taking by mitigating the financial consequences of risky actions.
Step-by-step explanation:
An increase in incidences of riskier behaviors when workers' compensation is available is consistent with a moral hazard issue. The term moral hazard describes the phenomenon where individuals change their behavior and become more inclined to take risks when they are insured, as the negative consequences of their actions are partly or entirely mitigated by the insurance coverage. Workers' compensation is a form of insurance that provides wage replacement and medical benefits to employees injured in the course of employment. While it is an essential safety net, it can also lead to moral hazard if workers engage in riskier behaviors knowing they have coverage in case of injury.
Researchers have found that having insurance can reduce healthy behaviors and increase activities like smoking and drinking. While we can't completely eliminate moral hazard, insurance companies can reduce its effects through measures like fraud investigations, monitoring behaviors, and providing incentives for safer practices. For instance, a business may receive a lower insurance rate if it installs and maintains top-level security and fire sprinkler systems.