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What is 'moral hazard' that Economic Survey is talking about?

There was a question in one test series that I am writing where this question was asked what is moral hazard in economic survey?

Options are

1) Farm loan waivers discourage people to pay loans
2) Writing off debts / NPA by banks increases default
3) Some option but very logical
4) Once govt helps banks clear NPAs , banks will do reckless lending


I marked all as correct as all can be equally correct. What should be the correct answer?



Comments

  • edited May 2017
    (2 &4)

    If the govt writes off debts, banks would engage in reckless lending as they would feel protected from the consequences of poor decisions and risky behavior...
    An Ounce of Action Is Worth a Ton of Theory
  • (2 &4)

    If the govt writes off debts, banks would engage in reckless lending as they would feel protected from the consequences of poor decisions and risky behavior...

    Why not farm loan waivers? They also increase risky behaviour?
  • edited May 2017
    Jennifer said:

    (2 &4)

    If the govt writes off debts, banks would engage in reckless lending as they would feel protected from the consequences of poor decisions and risky behavior...

    Why not farm loan waivers? They also increase risky behaviour?
    please give the exact answer options?
    An Ounce of Action Is Worth a Ton of Theory
  • Jennifer said:

    (2 &4)

    If the govt writes off debts, banks would engage in reckless lending as they would feel protected from the consequences of poor decisions and risky behavior...

    Why not farm loan waivers? They also increase risky behaviour?
    please give the exact answer options?
    i dont remember which test.. i solved 4 papers in a row.. give me some time..

  • Jennifer said:

    There was a question in one test series that I am writing where this question was asked what is moral hazard in economic survey?

    Options are

    1) Farm loan waivers discourage people to pay loans
    2) Writing off debts / NPA by banks increases default
    3) Some option but very logical
    4) Once govt helps banks clear NPAs , banks will do reckless lending


    I marked all as correct as all can be equally correct. What should be the correct answer?



    Economic Survey uses moral hazard in the context of farm loan waivers and middle class's reluctance to pay income tax.

    As far as writing off debts is concerned, EcoSurvey actually argues for doing away with NPA once the public opinion is in favour of it.

    Ans could b A only.

    What does key say?
    Prelims : 2/2. Mains : 0/2. 24 years. "Thats how you devour a whale ; One bite at a time"
  • Key says that once govt helps banks clear NPAs , banks will become reckless and will lend carelessly again..

    i think its right. its given in mrunal too

    http://mrunal.org/2017/05/bes171-banking-bad-bank-npa.html

    search moral hazard
  • edited May 2017
    Moral hazard in ES is used in 2 contexts. One is NPA issue which Dragonborn mentioned above. And the other is in the context of Arvind Subbrmanian's pet project UBI.
    A Lion doesn't concern himself with the opinions of the sheep.
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