Moral risk:
In economics, moral hazard occurs when an entity has an incentive to increase its exposure to risk because it does not bear the full costs of that risk. For example, when a corporation is insured, it may take on higher risk knowing that its insurance will pay the associated costs. A moral hazard may occur where the actions of the risk-taking party change to the detriment of the cost-bearing party after a financial transaction has taken place.
Moral hazard can occur under a type of information asymmetry where the risk-taking party to a transaction knows more about its intentions than the party paying the consequences of the risk and has a tendency or incentive to take on too much risk from the perspective of the party with less information. One example is a principal–agent problem, where one party, called an agent, acts on behalf of another party, called the principal. If the agent has more information about his or her actions or intentions than the principal then the agent may have an incentive to act too riskily (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned. [Wikipedia]
I assume Moral Risk and Moral Hazard are more or less synonyms. Noted in “Not That Innocent,” Elizabeth Bruenig, The Atlantic:
He shouldn’t have done what he did, none of it; nor should we have given him the opportunity to do what he did from death row, which we did when we created the machinery of capital punishment. Killing never reduces moral risk; there’s no cosmic ledger it can, by subtraction, set right, and no slate it can wash clean with the right amount of blood. In this way the lives of the innocent are no different from the lives of the guilty. The abolition of the death penalty will likely rest on whether we are willing to make that case.
