A brief note on Moral Hazard

The general idea of moral hazard is that "the more you feel insulated from risk, the more temptation you have take it" ( http://banking.about.com/od/loans/a/MoralHazard.htm). The context of my study of the topic of moral hazard is in Strategic Management Accounting, In this setting, moral harzard is a situation in which an employee prefers to exert less efforts or report distorted information as desired by the owner because the employee's effort cannot be accurately monitored (Bhimani et al. 2008) . From this description, I can discern 3 inter-related management issues: (a) issue of reward system design, (b) issue of performance evaluation system, and (c) issue of motivation.


References

1. Bhimani, A., Horngren,C.T., Datar, S.M. and Foster, G. (2008) Management and Cost Accounting, FT Prentice Hall.
2. On moral hazard: http://en.wikipedia.org/wiki/Moral_hazard
3. How moral hazard works: http://banking.about.com/od/loans/a/MoralHazard.htm