Definition: Moral Hazard

Moral Hazard - "the risk associated with a loan in which the borrower has incentives to invest in projects with high risk where the borrower does well if the project succeeds but the lender bears most of the loss if the project fails. The prospect of “bail out” of failed projects by, for example, the International Monetary Fund and the international community means that borrowers are more likely to shirk or use funds for personal use or power." - source: Economic Development 4th Edition by E. Wayne Nafziger

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