Sample Essay

Moral hazards present the theory that there is a significant amount of risk involved where parties are involved in a contract or agreement or in decision making process in the absence of good faith. The risk to individuals, firms and government due to these decisions are termed as moral hazards (Wessels 2006).

If economic performance is evaluated using tools in good faith they can provide decision makers with reliable information and if values are slightly manipulated to reflect a favorable position then it would present a moral hazard. The theory of measurement approaches provides two alternatives of measurements based on suppositions and actual behavior (Folmer and Tietenberg 2001). The components of GDP are based on both actual statistical data and hypothetical data as data is collected from actual sources and estimates are applied to come up with averages. These averages are further manipulated by governments to tilt GDP in their favor.

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