essays on moral hazard

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This book is a collection of essays discussing aspects and particular cases of moral hazard. The main focus is on how government intervention in the financial system and related industries can lead to moral hazard, which the editors define as “the reduced incentive to protect against risk where an entity is (or believes it will be) protected from its consequences” (preface).

This review summarizes the individual chapters with added commentary on what I think is right, wrong, or missing. I will start with the financial sector and industry case studies before returning to the moral and ethical questions.

Chapter 3, “Moral Hazard and Lending of Last Resort,” by Stefano Ugolini outlines the debate between Walter Bagehot and Thomson Hankey at the origin of central banking and the doctrine of last resort lending. Bagehot, while skeptical of central banking in general, argued that given the existence of such a bank, it should be obligated to act as a last-resort lender but only under strict conditions such as requiring good collateral and not lending to unsound banks. Hankey opposed such activities on the grounds that central banks, in particular the Bank of England, are unlikely in practice to maintain a strict policy as Bagehot recommended. Indeed, Ugolini finds that Hankey was largely correct that modern central banks have not adhered to Bagehot’s rules for last resort lending, just as my coauthors and I found regarding the Federal Reserve’s actions in the 2008 financial crisis (Thomas L. Hogan, Linh Le, and Alexander William Salter, 2015, Ben Bernanke and Bagehot’s Rules, Journal of Money, Credit and Banking 74, no. 2/3: 333 – 348). Ugolini also argues, rightly in my view, that last resort lending is often inappropriately modeled in the economic literature as a form of deposit insurance.

Two chapters extend the discussion of moral hazard from government intervention in financial markets. Chapter 7, “The Institutionalization of Bailouts, 1970 – 1984” by Norbert Gaillard and Rick Michalek, documents the historical trends of government interventions, culminating in the rescue of financial institutions deemed “too big to fail” (TBTF). The authors trace this doctrine from the failure of Penn Central Railroad in 1970 through Franklin National Bank in 1974 to Continental Illinois National Bank in 1984, demonstrating the incremental steps by which TBTF became institutionalized as official policy. The authors note that this result “appears to run counter to economic as well as political liberalism” (p. 150).

Despite the title, “Design and Cost of U.S. Responses to the 2007 – 2009 Financial Crisis and the 2020 Covid-19 Pandemic” by Cheryl D. Block, chapter 9 does not adequately account for the costs of moral hazard created by government intervention. The chapter shows how emergency lending facilities in both crises were thrown together ad hoc rather than based on a predefined plan. Oddly, however, the author states that “the Federal Reserve’s COVID crisis interventions may cost the government little or nothing—and may even result in profits” (p. 191). While that may be true in a strict accounting sense, it understates the costs of intervention such as institutional uncertainty discussed in the chapter as well as in my own research (Nicolás Cachanosky, Bryan P. Cutsinger, Thomas L. Hogan, William J. Luther, and Alexander W. Salter, 2021, The Federal Reserve's Response to the COVID-19 Contraction: An Initial Appraisal, Southern Economic Journal 87, no. 4: 1152 – 1174).

Chapters 5 and 6 focus on international last resort lending. “The International Lender of Last Resort between Scylia and Charybdis” by Juan Flores Zendejas and Norbert Gaillard tracks the evolution of unofficial international last resort lending, highlighting the effects of both debtor and creditor moral hazard from the nineteenth century Pax Britannica up to the current day. This includes early central banks and the League of Nations as well as more recent institutions such as the World Bank and International Monetary Fund (IMF). “Moral Hazard at the IMF: An Analysis of the Fund’s Policies and Status” by Giuseppe Bianco focuses on the tools used by the IMF to minimize moral hazard from sovereign debtors, their creditors, and the IMF itself. Both chapters discuss methods of limiting moral hazard while acknowledging that significant risks remain. They provide valuable historical accounts, but I think they understate the moral hazard created by government sponsorship of these nongovernmental entities with no adequate means of monitoring or punishing irresponsible lending practices.

Chapter 4, “Moral Hazard in the Export Credit Industry” by Aline Darbellay and Norbert Gaillard, focuses on the activities of export credit agencies (ECAs) and export-import banks (EIBs), especially the U.S. Export-Import (ExIm) Bank. ECAs and EIBs have proliferated over the past century despite suffering moral hazard from both financial and political means. The problems are illustrated using the U.S. ExIm Bank, which faces moral hazard from foreign debtors and domestic exporters as well as from the U.S. Congress. A major source of these distorted incentives is that these entities tend to be political in nature rather than economic. As the authors describe, “ECAs and EIBs are still a foreign policy tool and their programs continue to benefit only a very few economic sectors” (p. 57).

Chapter 8, “Varieties of Moral Hazard in the Global Automobile Industry” by Fumihito Gotoh and Timothy J. Sinclair, argues that national auto industries are subject to moral hazard from government policies as well as “short-termist financial capitalism.” Because it was partly state-owned, the French automaker Renault exposed taxpayers to unnecessary and unmonitored risk in its acquisition of Japanese Nissan. The strange example of “financial capitalism” causing moral hazard is that General Motors (GM) failed to adequately invest in research and development due to excessively generous healthcare and retirement benefits for its workers. It is unclear, however, why capitalism should be faulted for this mistake, if it is moral hazard at all, since the decision was motivated by poorly structured tax incentives that favor employer-based healthcare over competitive provision.

I found the least convincing chapter to be Rutger Claassen’s “The Ethics of Moral Hazard Revisited.” Claassen argues that insurance contracts form a fiduciary duty between the insured and the pool depositors. However, this structural description is surely a very limited case. The author argues that “[m]any private insurance schemes fit this description” (pp. 25 – 26), but it most aptly applies to a small subset of mutual insurance cooperatives and is irrelevant for bilateral contacts or financial instruments. The chapter sets up a “public policy trilemma” and assumes public insurance to be a “moral requirement” (p. 30), but it provides no evidence for this assumption and ignores the real-world costs of public insurance programs.

This brings me to a few ambiguities I noticed repeatedly throughout the book. First, there is no consistent distinction between private and government-mandated moral hazards. A review of the literature on deposit insurance (see Thomas L. Hogan and Kristine Johnson, 2016, Alternatives to the Federal Deposit Insurance Corporation, The Independent Review 20, no. 3 [Winter], 433 – 454), for example, finds that government deposit insurance programs are more affected by moral hazard and exhibit higher rates of bank failures and financial crises relative to their private counterparts. Second, the book often mentions “social costs” or “social welfare,” but I found this language confusing. In many cases of moral hazard, one group is harmed, and another gains. Why not be specific about the winners and losers? Third, I found the book’s definition of moral hazard to be a bit vague. Seatbelts, for example, fit the definition of “the reduced incentive to protect against risk where an entity is (or believes it will be) protected from its consequences,” but they do not exhibit asymmetric information as typically associated with moral hazard. It would have been helpful to have more discussion and examples of what is and is not moral hazard.

Overall, I found the book more useful for the factual examples and historical case studies than for learning generally about moral hazard. Readers should read with a skeptical eye, as many of the chapters fail to fully recognize the costs of the supposed solutions to government-induced moral hazards.

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Moral Hazard in Finance, Essay Example

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Moral hazard refers to a situation in which a party to a transaction has not entered the contract in good faith, has provided misleading information, or has an incentive to take unusual risks in the pursuit of profits before the completion of the contract (Investopedia). The recent financial crisis is considered by many to be the worst since the Great Depression and has forced many among us to question the ability of the markets to regulate themselves effectively. One of the reasons why markets do not always function efficiently is the existence of moral hazard.

One of the major contributors to moral hazard in finance is expectation of help/rescue in case things go wrong. Moral hazard exists at both individual and organizational levels. One of the organizations that have been accused of creating moral hazard is IMF which often provides rescue funding to troubled economies as is evident by its rescue of Mexico for $18 billion in 1995. IMF followed by approving lending programs for Thailand, Indonesia, South Korea, and Brazil etc. (Dreher) The expectation that IMF will rescue if things go wrong leads countries to inefficient management of their finances because they do not expect the worst case scenarios to materialize.

Moral hazard also exists due to lack of accountability. As Wharton Finance Professor Richard J. Herring states, the government response to the recent financial crisis has created even more moral hazard because lenders to financial institutions have not suffered the same losses as stockholders. Similarly, another Wharton Finance Professor Franklin Allen claims that the government response has rewarded failure because the largest companies will know in the future that they are “too big to fail”, thus, the government will bail them out if things go wrong. Wharton Finance Professor Marshall E. Blume points out that many people who created the bubble exited the market before the collapse and made huge money (Knowledge@Wharton), thus, they were not held accountable for the mess they created.

Moral hazard also exists because the decision maker doesn’t face the full consequences of his actions. As example is an asset manager who profits by investing others’ money but is not wholly responsible for any loss of capital. Thus, he is more willing to take risky steps in order to earn higher return because his personal gains are directly related to the returns earned by his fund. In other words, the rewards are much greater than the potential costs. Another factor that contributes towards moral hazard are poorly designed incentive systems. During the housing boom, mortgage officers were not compensated on the basis of issuing quality mortgage loans or minimizing risk but instead on the volume. This is why mortgage officers gave little attention to the risk they were creating and more to mortgage loans turnover (Okamoto).

Moral hazard also exists because of conflicts of interest. Credit rating agencies obtain most of their revenues from organizations selling the bonds. During the financial crisis, credit rating agencies assigned Triple A ratings to several deals which ultimately turned out to be quite risky. But credit rating agencies did well at least until 2007, with Moody’s enjoying a sixfold increase in its stock price between 2000 and 2007. While issuing Triple A ratings helped credit rating agencies earn record revenues, they have paid little price for the erroneous ratings they issues which is why there are now calls for increasing the accountability of credit rating agencies (Duyn).

Moral hazard also exists if there is a security net as in the case of FDIC insurance that provides protection on bank deposits up to a certain amount. In this case, banks will take less care in ensuring they do not take excessive risks on deposited funds while consumers will have little incentive to do research on the health of the bank in which their deposits reside.

The recent financial crisis has not only shown us several instances of moral hazard but has also increased the probability of moral hazards in the future. The government has bailed out several banks and financial organizations including Citibank, Goldman Sachs, Morgan Stanley, AIG, and Wells Fargo (ProPublica) which sends message to the markets that the government will always be there as a lender of the last resort, thus, banks and financial institutions have really small probability of going out of business, even in the worst case scenarios.

The government has also increased moral hazard among the general public due to policies that may be politically beneficial but introduce inefficiencies in the economic system. The U.S. Government created Freddie Mac and Fannie Mae to increase home ownership among the American public which is why Freddie Mac and Fannie Mae issued substantial mortgage loans during the housing boom that should not have been made in the first place due to buyers’ credit worthiness. The purpose of these two organizations forces them to ignore certain safety measures that may be taken by private mortgage organizations whose sole purpose is profit maximization.

The concept of moral hazard in finance has existed for centuries now as is evident by financial crisis that occurred in Europe even before the founding of the U.S. There are several factors that increase the probability of moral hazard such as poorly designed incentive systems, lack of accountability, future expectations as a result of events such as financial rescue and bailouts, and conflicts of interest. The key to reducing moral hazards is to increase accountability for decision makers and set precedents such as the failure of Lehman Brothers so that financial organizations know they may be forced to bear the full consequences of their actions.

Dreher, Axel. Does the IMF cause moral hazard? A critical review of the evidence. Exeter: School of Business and Economics, University of Exeter, March 2004.

Duyn, Aline van. Reform of rating agencies poses dilemma. 10 June 2010. 21 February 2013 <http://www.ft.com/intl/cms/s/0/a374a2be-74b3-11df-aed7-00144feabdc0.html#axzz2Layp0K2s>.

Investopedia. Moral Hazard. 21 February 2013 <http://www.investopedia.com/terms/m/moralhazard.asp#axzz2LZXLzHF6>.

Knowledge@Wharton. ‘Rewarding Failure’: Will the Crisis Leave a Residue of Moral Hazard? 8 July 2009. 21 February 2013 <http://knowledge.wharton.upenn.edu/article.cfm?articleid=2282>.

Okamoto, Carl S. “After the Bailout: Regulating Systematic Moral Hazard.” UCLA Law Review 2009: 183-236.

ProPublica. Bailout Recipients. 21 February 2013 <http://projects.propublica.org/bailout/list>.

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Contributions to Insurance Economics pp 61–96 Cite as

Moral Hazard and Insurance Contracts

• Ralph A. Winter 3  

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Part of the book series: Huebner International Series on Risk, Insurance and Economic Security ((HSRI,volume 13))

This essay synthesizes and extends the theory of optimal insurance under moral hazard, with a focus on the form of insurance contracts. The simplest model illustrates the most fundamental result: that the market responds to moral hazard with partial insurance coverage. But this model is not general enough to predict the contractual form of this response. The most general model, the Principal-Agent model, yields mostly negative results. In extending the theory, I adopt an intermediate approach, distinguishing between moral hazard on the probability of an accident and moral hazard on the size of the loss. This approach generates predictions as to when deductibles, coinsurance and coverage limits will be observed. The essay reviews as well moral hazard with a partially informed insurer and dynamic models of moral hazard. It concludes with a discussion of open questions in the theory of moral hazard and insurance.

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• principal-agent

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Winter, R.A. (1992). Moral Hazard and Insurance Contracts. In: Dionne, G. (eds) Contributions to Insurance Economics. Huebner International Series on Risk, Insurance and Economic Security, vol 13. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-1168-5_3

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What Is Moral Hazard?

Understanding moral hazard, the bottom line, moral hazard: meaning, examples, and how to manage.

Michael Sonnenshein is the CEO at Grayscale Investments, the world’s largest digital currency asset manager.

Moral hazard is the risk that a party has not entered into a contract in good faith or has provided misleading information about its assets , liabilities , or credit capacity . In addition, moral hazard also may mean a party has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

Moral hazards can be present anytime two parties come into agreement with one another. Each party in a contract may have the opportunity to gain from acting contrary to the principles laid out by the agreement.

Anytime a party in an agreement does not have to suffer the potential consequences of a risk, the likelihood of a moral hazard increases.

Key Takeaways

• Moral hazard can exist when a party to a contract can take risks without having to suffer consequences.
• Moral hazard is common in the lending and insurance industries but also can exist in employee-employer relationships.
• Leading up to the 2008 financial crisis, the willingness of some homeowners to walk away from a mortgage was a previously unforeseen moral hazard.

Investopedia / Sydney Burns

A moral hazard occurs when one party in a transaction has the opportunity to assume additional risks that negatively affect the other party. The decision is based not on what is considered right but on what provides the highest level of benefit, hence the reference to morality. This can apply to activities within the financial industry, such as with the contract between a borrower and a lender , in addition to the insurance industry.

For example , when a property owner obtains insurance on a property, the contract is based on the idea that the property owner will avoid situations that may damage the property. The moral hazard exists that the property owner, because of the availability of the insurance, may be less inclined to protect the property, since the payment from an insurance company lessens the burden on the property owner in case of a disaster.

Moral hazards can exist in employer-employee relationships as well. If an employee has a company car for which they do not have to pay for repairs or maintenance, the employee might be less likely to be careful and more likely to take risks with the vehicle.

When moral hazards in investing lead to financial crises, the demand for stricter government regulations often increases.

Examples of Moral Hazard

Prior to the financial crisis of 2008 , when the housing bubble burst, certain actions on the part of lenders could qualify as moral hazards. For example, a mortgage broker working for an originating lender may have been encouraged through the use of incentives, such as commissions, to originate as many loans as possible regardless of the financial means of the borrower. Since the questionable loans were intended to be sold to investors —shifting the risk away from the lending institution—the mortgage broker and the originating lender experienced financial gains from the increased risk. The burden of the risk would ultimately fall on the investors .

Borrowers who began struggling to make their mortgage payments also experienced moral hazards when determining whether to attempt to meet the financial obligation or walk away from loans that were becoming more difficult to repay.

As property values decreased, borrowers were ending up deeper underwater on their loans. The homes were worth less than the amount owed on the associated mortgages. Some homeowners may have seen this as an incentive to walk away, as their financial burden would be lessened by abandoning a property.

Insurance coverage is also prone to moral hazard. For example, if someone buys the latest cell phone and takes out insurance on it, they may be less likely to be careful with it. The assumption that it will be replaced regardless of their level of care creates a moral hazard. Meanwhile, replacement costs of damaged cell phones then drive up the cost of insurance for everyone who might purchase the coverage.

What Does Moral Hazard Mean?

In economics, the term “moral hazard” refers to a situation where a party lacks the incentive to guard against a financial risk due to being protected from any potential consequences.

How Do You Manage Moral Hazards?

There are a few ways to minimize moral hazards . The first is to encourage the risk-taking party to act more responsibly by offering them incentives. The second is to institute policies that discourage immoral behavior by making it a punishable offense. Finally, regular monitoring allows the at-risk party to remain aware of whether or not the other party is taking advantage of them.

What Is the Difference Between Moral Hazard and Adverse Selection?

Moral hazard is a phenomenon wherein being protected from the consequences of one’s actions encourages additional risk-taking. Adverse selection refers to situations in which one party utilizes information they possess that another party doesn’t to ensure a trade is in their favor.

As an example, a moral hazard is the risk that an employee who is enrolled in their company’s dental insurance plan may be less concerned about their oral hygiene, whereas someone who knowingly has a high-risk lifestyle is making an adverse selection by taking out a life insurance policy.

Moral hazards can be a high cost to businesses. Learning how to identify and mitigate them is essential to a business's profitability and longevity. Implementing practices or offering incentives that result in the risk-taking party having some "skin in the game" are means of tackling this problem.

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Moral Hazard Essay

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Topic: Management , Goals , Business , Company , Risk , Firm , Time Management , Agent

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When owners of a business and the management for the business are different, differing objectives and incentives can lead to formation of moral hazard problems, also referred to as principal agent problem in a benign manner (Cole, He, McCullough, & Sommer, 2011). Management can have its own agendas and objectives and would formulate business plans and strategy in order to achieve such objectives. On the other hand, the owners might have different objectives, but do not participate in day to day decision making of the firm’s business. Thus, in order to maximize their incentives, management may resort to excessive risk taking behaviour, something which may yield positive results in the short term, but may be harmful for the business in the longer term. This situation of moral hazard is thus created as the objectives and incentives for the owners and the management are different (Cole, He, McCullough, & Sommer, 2011). In order to minimize such a problem, there can be solutions such as stock options as performance bonus for management, entering into long term service contracts with senior management and also efficiency wages (Abdalla, 2008). Stock option based performance bonuses can mean that the management would work in a way such that the whole firm benefits, thus adding to the shareholder value as well. But there have been empirical shortcomings in this approach, whereby agency problem has increased rather than reducing. The most popular mean of reducing this problem is to offer management long term service contracts. As the management would be aware that they would have to spend a long time at the firm, they would make decisions taking into account the long term objectives of the company. The other solution is to offer efficiency wages to the employees. This would prevent them from slacking off from work.

Cole, C. R., He, E., McCullough, K. A., & Sommer, D. W. (2011). Separation of Ownership and Management: Implications for Risk-Taking Behavior. Risk Management and Insurance Review, 14(1):49-71. Abdalla, K. (2008). Principal-Agent Problem. Jargon Alert. Retrieved from https://www.richmondfed.org/~/media/richmondfedorg/publications/research/region_focus/2008/fall/pdf/jargon_alert.pdf.

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Moral Hazard in the Companies Essay

Aligning interest, variable payment, attitude towards risk, investment in location, length of tenants lease, comparison of tenants.

One of the potential ways in which the company would be subject to moral hazard comes in the form of not fully complying with the duties of being a landlord. This comes in the form neglecting to properly maintain the mall for potential customers of the tenants.

A variable payment scheme aligns the interest of the landlord and tenant through the process of percentile gain. Basically, the more sales a tenant has, the greater the amount of money the landlord generates. As such, it is in the interest of the landlord to support the tenant since this would result in higher profits for the landlord in the long term.

In the case of the tenant supporting the landlord, it should be noted that the variable payment scheme ensures that the mall itself is serviced and maintained properly by the landlord since that is where a percentage of the payments would go towards. This ensures that the mall continues to be a viable investment for the landlord in the long term.

When looking at the case and the various factors associated with the sale of goods and services, it is advisable that a gross revenue scheme be chosen. The reason behind this is that the mall operator will have a vested interest in ensuring the tenant will make money whereas under the net revenue option there is the potential moral hazard that the landlord would just collect payments without implementing any form of support since whether or not the tenant makes money does not impact them in the least.

Variable payment should increase or decrease based on the landlord’s perception regarding the risk associated with the type of tenant renting. Anchor tenants in malls (i.e. McDonalds, Starbucks, etc.) can be deemed as being low risk and should have a low variable payment rate. While small independent stores that are relatively unknown are thus more risky (i.e. fewer people may buy) and, as such, should have a higher variable payment rate. This is also because another more famous tenant could have rented the same space.

Not all locations are created equal within a mall with some areas generating lower levels of foot traffic as compared to others. As such, giving a lower rate for certain areas is advisable so as to ensure fairness when it comes to rental management practices. One of the ways in which this can be accomplished would be to retain the standard of 1% of the client’s gross revenue while reducing the fixed monthly rate of $35 – $38 to $25 – $28 for areas with lower foot traffic.

The average length of a tenants lease should be two years at most. This is due to the fact that the landlord may need to change the contract agreements to better align with increased costs due to inflation (i.e. increase the fixed monthly payment). Also, a length of two years would be viable for tenants since it ensures that they are not locked into a lengthy contract wherein they lose more money than they gain due to a lack of product patronage.

When looking at the various malls, it can be speculated that the types of tenants for the IMM Building would be tenants that are looking for an area with a large square footage for their store along with sufficient warehouse space for their products. These are all factors that can be seen in the IMM building due to the 1,426,518 square feet available for retail. Some possible tenants would be big box stores such as Home Depot or various furniture retailers like Ikea.

Centrepoint Properties would attract smaller independent retailers due to the fixed monthly rental charges which would enable them to price their products competitively. The mall developed by Maple Tree investments would attract more mid to high end restaurant tenants given its proximity to the central business district of Singapore which would result in many office workers going there for lunch or dinner.

• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2020, June 28). Moral Hazard in the Companies. https://ivypanda.com/essays/moral-hazard-in-the-companies/

"Moral Hazard in the Companies." IvyPanda , 28 June 2020, ivypanda.com/essays/moral-hazard-in-the-companies/.

IvyPanda . (2020) 'Moral Hazard in the Companies'. 28 June.

IvyPanda . 2020. "Moral Hazard in the Companies." June 28, 2020. https://ivypanda.com/essays/moral-hazard-in-the-companies/.

1. IvyPanda . "Moral Hazard in the Companies." June 28, 2020. https://ivypanda.com/essays/moral-hazard-in-the-companies/.

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IvyPanda . "Moral Hazard in the Companies." June 28, 2020. https://ivypanda.com/essays/moral-hazard-in-the-companies/.

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Guest Essay

The Best Way to Find Out if We Can Cool the Planet

By Jeremy Freeman

Dr. Freeman is the executive director of CarbonPlan, a climate research nonprofit.

A few years ago, the idea of deliberately blocking the sun to combat climate change was taboo for scientists. But a lot can change in a short time .

As the disastrous effects of climate change mount, Congress has asked federal scientists for a research plan , private money is flowing and rogue start-ups are attempting experiments — all signs that momentum around solar geoengineering is building fast. The most discussed approach involves spraying tiny particles into the stratosphere to reflect sunlight and cool the planet. Other proposals include injecting sea salt into clouds to increase their reflectivity or using giant space parasols to block the sun .

It might all sound like dystopian science fiction, but some techno-futurists, like OpenAI’s chief executive, Sam Altman, are already normalizing it: “We’re going to have to do something dramatic with climate like geoengineering as a Band-Aid, as a stopgap,” he said in January at the World Economic Forum in Davos.

No one fully understands the risks of these technologies — which could include calamitous disruptions in weather — or how significant the benefits could be. I’m increasingly convinced that we should do more research on solar geoengineering . But such high-stakes science requires extraordinary levels of transparency and accountability to the global public. The alternative is clandestine research controlled by corporations or autocratic regimes, lurching toward deployment without knowing — or knowing and not sharing — the true risks.

The potential risks of solar geoengineering are serious. Spraying reflective particles in one place, for example, could significantly change rainfall patterns elsewhere. What’s more, once anyone starts solar geoengineering at a larger scale, suddenly stopping it could lead to “ termination shock ” — global temperatures rapidly readjusting to where they would have been without geoengineering. With such terrifying points of no return, every accelerating step of research requires global public participation and deliberation.

Most research so far has been tentative and contained to computer simulations . But to know what will happen in the real world, we also need outdoor experiments. By launching an instrument-laden balloon into the stratosphere, for example, researchers could release a tiny amount of particles and measure how they interact with the atmosphere, with minimal environmental risk.

But already we’ve seen a backlash to these kinds of experiments: Harvard geoengineering researchers planned a dry run of their instruments in Sweden in 2021 only to be shut down after the Indigenous Saami Council and local environmental groups protested the tests. A key concern was how such research could redirect attention and investment from more pressing efforts to reduce emissions, thereby becoming a moral hazard . More recently, Mexico banned geoengineering experiments after discovering an American tech entrepreneur had launched a balloon test without permission. And a startup out of Israel has now raised millions of dollars and is planning experiments with little to no transparency. Some assessments suggest that more experiments, and even larger deployments, are increasingly likely. It would be far better if they happened in the open, as in Sweden, rather than in secret.

Even in places where no experiments have been planned, the public is wary. Most people haven’t heard of geoengineering in the United States, but of those who have, 72 percent reported being very concerned we’ll use it before understanding its impact. More broadly, while there’s evidence of support for research , that support is reluctant and conditional. Without transparency and trust, public debate on geoengineering could devolve into conspiracy theories and partisan ideology.

A reluctance to trust scientists is understandable. Science as a profession has for too long pursued prestige at the expense of integrity, and public scientific institutions have been increasingly privatized with minimal accountability. With a long, troubled history that includes eugenics and weapons of war, we cannot pretend that science is either pure or infallible.

But science is fallible precisely because it is a practice , a cooperative human activity. And as the moral philosopher Alasdair MacIntyre reminds us, engaging in a practice well requires exercising its virtues — which for science include transparency, honesty, humility, skepticism and collaboration. For geoengineering, that means disclosing all funding and effectively managing potential conflicts of interests, ensuring the participation of stakeholders from around the world in decision making , avoiding groupthink, sharing early-stage results and data to accelerate research and engaging in radically open science .

Transparency on its own may not lead to the widespread adoption of a new technology. A study on Covid-19 vaccine communication showed that increased transparency, especially about negative outcomes, led to lower vaccine acceptance — but it did increase trust in public health. A potential lesson for solar geoengineering is that transparency is important even when or perhaps especially when it doesn’t result in an outcome scientists initially imagine.

We should be especially wary of ceding control over geoengineering research to the tech industry. Often under the guise of virtue, techno-futurists capitalize on the power that comes from scientific knowledge while exploiting people and the environment, a pattern The Atlantic’s Adrienne LaFrance diagnoses as techno-authoritarianism. We cannot allow private for-profit entities to steer, or covertly fund, solar geoengineering research.

Instead, any research must be done by institutions acting in the public’s interest. If private funding is the only option, scientists will need to choose carefully where they work and defend their integrity against external pressures. They must clearly communicate research findings, positive and negative, and educate the public about what’s possible and what’s at stake. That way the public can in turn hold policymakers, regulators and scientists to account, with everyone working together in pursuit of a common good.

When confronted with the prospect of solar geoengineering, we may wish it had never come to this point. But we can still decide how to move forward responsibly, with and for the public.

Jeremy Freeman is the executive director of CarbonPlan, a climate research nonprofit. Much of CarbonPlan’s work has focused on carbon dioxide removal, another controversial climate technology.

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Insurance Essay Sample: Moral Hazard

The article states that moral hazard is a term used to describe the behavior changes that occur when people are insured against all loses. According to the article, insurance refers to that something that protects a person from any harm. It does not have to bear the common meaning of the policies bought from insurance agents or companies. It is common for people to adopt different behavior changes when they know that they are fully protected from any impending risks or damages incurred. As per the article, human beings will be more careless to causing damages to their properties especially when they know that they are covered. Therefore, should they cause any damage; they will not have to use money from their pocket to rectify such damages. Similarly, fully insured people are more likely to engage in risky behaviors because they know that they stand to lose nothing. After all the insurance cover will take care of every risk incurred. This is also true that fully insured people will be careless in taking caution not to cause more harm and dangers.

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Going by the examples given in the article, car owners who are fully insured will always be less cautious in causing damages to other cars because they will not be liable for any costs. These bad behaviors might even extend to the frequency of accidents especially to those who have the third party complete insurance covers. They will frequently take such risks knowing that they will not be answerable for any damaged or risk caused. After all, they are fully covered, and the companies will take care of the problems incurred. Banks on the same note will take part in risky investment knowing well that even if the investment fails, the government will bail them out of the mucky situation. This is common behavior that happens among human beings. People are prone to acts of negligence and risky behavior when they know that they will not hold any liabilities to their actions.

It is important therefore for firms to ensure that people are responsible for their actions. Insurance companies should come up with strict policies that award responsibilities to people due to their misbehavior. As per the article, it is important for firms to insure partially people and their properties. They should ensure that the insured have a bigger role to play in dealing with their risks or damages caused. It is right for such firms to make people pay high prices for such occurrences. They should deny them full cover to ensure that such people control their behavior. Similarly, the firms should ensure that people are entitled to deductibles so that they take responsibilities for their actions. Banks take responsibilities in investing clients' money. The financial institutions may involve in risky investment plans knowing that even if the plans are risky, they will get help from the government. They engage in such activities because they know that the government will come to their rescue should such actions fails. Therefore, to instill the need for moral hazard awareness, insurance companies should ensure that people take responsibilities for their behavior. The government should also ensure that banks play a role in recovering their lost investments. Ensuring full responsibilities will help in inculcating the right behavior in people and financial institutions. Similarly, health insurance companies should ensure that they do not take too many medical risks to enable people to be responsible for their actions. The act will reduce the amounts of expenditures for insurance companies and to the government sectors.

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Insurance Essay Sample: Moral Hazard. (2021, Mar 12). Retrieved from https://proessays.net/essays/moral-hazard

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