Moral Hazard A Financial, Legal, and Economic Perspective

Moral Hazard is a core concept in economics. In a nutshell, moral hazard reflects the reduced incentive to protect against risk where an entity is (or believes it will be) protected from its consequences, whether through an insurance arrangement or an implicit or explicit guarantee system. It is fundamentally driven by information asymmetry, arises in all sectors of the economy, including banking, medical insurance, financial insurance, and governmental support, undermines the stability of our economic systems and has burdened taxpayers in all developed countries, resulting in significant costs to the community. Despite the seriousness and pervasiveness of moral hazard, policymakers and scholars have failed to address this issue. This book fills this gap. It covers 200 years of moral hazard: from its origins in the 19th century to the bailouts announced in the aftermath of the COVID-19 outbreak. The book is divided into three parts. Part I deals with the ethics and other fundamental issues connected to moral hazard. Part II provides historical and empirical evidence on moral hazard in international finance. It examines in turn the role of the export credit industry, the international lender of last resort, and the IMF. Finally, Part III examines specific sectors such as automobile, banking, and the US industry at large. This is the first book to provide an interdisciplinary analysis of moral hazard and explain why addressing this issue has become crucial today. As such, it will attract interest from scholars across different fields, including economists, political scientists and lawyers.

1. Introduction Part I: Conceptual and Theoretical Aspects of Moral Hazard 2. The Ethics of Moral Hazard Revisited 3. Moral Hazard and Lending of Last Resort Part II: Moral Hazard and Sovereign Risk 4. Moral Hazard in the Export Credit Industry 5. The International Lender of Last Resort: Between Scylla and Charybdis 6.Moral Hazard at the IMF: An Analysis of the Fund’s Policies and StatusPart III: Moral Hazard in the Financial and Corporate Areas 7. The Institutionalization of Bailouts, 1970–1984 8. Varieties of Moral Hazard in the Global Automobile Industry 9. Design and Cost of U.S. Responses to the 2007–2009 Financial Crisis and the 2020 Covid-19 Pandemic 10. Remarks and Policy Recommendations to Fight Moral Hazard

Juan Flores Zendejas is Associate Professor at the Department of History, Economics and Society of the University of Geneva. Norbert Gaillard is an economist and independent consultant (www.norbertgaillard.com). Rick Michalek is a New York-based independent legal and financial consultant.