Moral Hazard

In my previous blog post, I had mentioned about Global Warning. Of course I meant that as a word play on the global warming phenomenon now engulfing the world.

What I will now say is also a bit of a word play, albeit of another one.

For the economists among you (they do exist), the term moral hazard is likely to bring back memories of reading a chapter either on Lipsey Steiner "Principles of Economics" or Paul Samuelson's "Economics". Of course I am refering to the case of the central bank rescue of a failed lender , arguably with the good intention of saving the savers, but in effect resulting in providing an incentive for other lenders to be reckless (because they know they will be bailed out by the central bank).

So I hear you say what does this have to do with anything? Well I beg to differ. This moral hazard as it turns out are prevalent in other institutions as well. So my plea is for the managers among you (o ye they also exist) to be wary if you are at the receiving end. Do not be easily accept a request such as these which will reflect poorly in your function's performance.

So the morale of the story is have an wider view of the situation prior to making a commitment which you may regret later. This is hardly rocket science, but sometimes this view gets lost in the jungle of exotic terms we face these days.