In tro duc ti onA cen tral oc cu pa ti on of eco no mists is to ana ly se the na tu re, cau ses, and ef fects of in cen ti ves -the cir cum stan ces that are held to mo ti va te hu man ac ti on. Eco nomists ag ree on the po si ti ve role that cer ta in in cen ti ves can play in in du cing ef forts to in cre a se pro duc ti on. They also ag ree that ot her in cen ti ves have a rat her ne ga tive im pact on pro duc ti ve ac ti vi ty. One of the se per ver se in cen ti ves is cal led mo ral ha zard, the sub ject of our pre sent essay.Mo ral ha zard is pre sent in "ac ti ons of eco no mic agents […] to the det ri ment of ot hers in si tu a ti ons whe re they do not bear the full con se qu en ces […] of the ir ac tions." 1) It is the in cen ti ve of a per son A to use more re sour ces than he ot her wi se would have used, be cau se he knows, or be li e ves to know, that so me o ne else B will pro vi de some or all of the se re sour ces. The im por tant po int is that this oc curs against B's will and that B is unab le to san cti on this ex prop ri a ti on im me di a te ly. The mere in cen ti ve to rely on re sour ces pro vi ded by ot hers is not per se prob le ma tic. For exam ple, the an noun ce ment of a fu tu re in he ri tan ce might pro mpt the pro specti ve heir to spend more in the pre sent than he would ot her wi se have spent. In such ca ses we would not spe ak of mo ral ha zard. A ge nu i ne moral-hazard prob lem ap pears ho we ver if A has the po ssi bi li ty to use B's re sour ces aga inst B's will and if he knows this. La y men would call A's in cen ti ves a "tem pta ti on to ste al" or a "tem pta tion to act ir res pon sib ly." Eco no mists, ever we a ry of mo ra li sing, have es pou sed the tech noc ra tic ex pres si on "mo ral ha zard." 2) Thus the es sen ti al fe a tu re of mo ral ha zard is that it in ci tes some pe op le A to exprop ri a te ot her pe op le B. 3) The B-people in turn, if they rea li se the pre sen ce of such a mo ral ha zard, have an in cen ti ve to re act aga inst this po ssib le ex prop ri a ti on. They make ot her cho i ces than tho se that they would con si der to be best if the re were no mo ral ha zard. Many eco no mists have con clu ded the re fo re that mo ral hazard en ta ils mar ket fa i lu res; it brings about a dif fe rent al lo ca ti on of re sour ces than the one that would exist in the ab sen ce of mo ral ha zard. Thus the eco no my de vi ates from its op ti mum path and po ssib ly ge ne ra tes disequilibria. The po ssib le mecha nisms of this pro cess have been stu di ed in a gre at va rie ty of cir cum stan ces.
Government interventions have always played a central role in the production of
money. Invariably, they have been justified by invoking the common good. More
than in other applications of virtue ethics, it is therefore necessary to examine the
causal nexus between concrete individual actions (monetary interventions) and
the common good. The groundwork for this analysis has been laid by Nicolas
Oresme in the fourteenth century. In the light of his approach, the main monetary
institutions of our present day – fractional-reserve banking and fiat money –
appear to be questionable practices that undermine the political, economic, and
moral foundations of society.
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