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    Moral hazard

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    Suppose the Sri Lanka government awarded contracts to private companies to rebuild the countrys infrastructure damaged by the tsunami and it based its contracts on a percentage of the cost of the reconstruction. Would this constitute a moral hazard? If so, what would the government need to do to prevent such a problem?

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    Suppose the Sri Lanka government awarded contracts to private companies to rebuild the country's infrastructure damaged by the tsunami and it based its contracts on a percentage of the cost of the reconstruction. Would this constitute a moral hazard? If so, what would the government need to do to prevent such a problem?

    Sri Lanka government awarded contracts to private companies to rebuild the country's infrastructure damaged by the tsunami.

    The first step is to understand that the percentage of ...

    Solution Summary

    This response presents a brilliant discussion on moral hazard.

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