Consider the following story: \"When Joe didn\'t have renter\'s insurance, he wa

Question

Consider the following story: "When Joe didn't have renter's insurance, he was very careful not to leave candles lit in his apartment and locked the door when he left. Now that he has renter's insurance, he typically leaves candles burning all day and forgets to lock the door because he knows that, even if his apartment catches on fire or gets broken into, his insurance will cover it." Which of the following economic problems is characterized in the story? The free-rider problem Moral hazard Government failure Adverse selection

Explanation / Answer

Moral hazard.

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