(Solved):What type of economy (market, socialist, planned, or transitional) would we expect to have the highest incidence of moral hazard? View Answer…

 

Question

What type of economy (market, socialist, planned, or transitional) would we expect to have the highest incidence of moral hazard?

 

EXPERT ANSWER

Moral hazard is likely to be the worst in a transitional economy. This is because in a transitional economy the old central-planning infrastructure has fallen apart while the new market mechanisms have not been established yet. Incomplete information is likely to be the worst, and moral hazard the most prevalent

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