What characterizes a moral hazard?

A moral hazard refers specifically to a situation that arises when an individual's behavior changes as a result of having insurance coverage. This often manifests as a tendency to engage in risky behavior because the individual does not bear the full consequences of their actions. Deliberate, reckless behavior with intent to defraud embodies the essence of moral hazard, as it involves a conscious decision to act in a manner that exploits the insurance policy.

When individuals believe they are shielded by insurance, they may take actions that are more reckless than they would if they had to bear the costs themselves. This can lead to increased risk and potential for fraud, as the person may deliberately cause damage or allow it to occur, knowing that the insurance will cover the costs.

In contrast, unintentional carelessness refers to actions lacking intent to mislead or defraud, so it does not fully capture the mal intent associated with moral hazard. A lack of insurance leading to riskier behavior reflects a different concept entirely, as it pertains to how individuals manage risk without coverage. Accidental damage due to negligence would classify as a form of unintended outcome rather than an intentional act influenced by the presence of insurance.