moral hazard

According to the Austrian School of Economics, money creation as the new purchasing power causes a boost in inequality because it is not simultaneously available to consumers. Therefore, imposing restrictions on money creation prevents the increase in inequality. Although assessing moral hazard and creditworthiness is an essential factor in credit supply, "Money Multiplier Theory" also considers it a function of the inflow of reserves and their supply by the central bank. In contrast, according to "Money Creation Theory," reserves are not a prerequisite for creating money. Banks' lack of need for reserves results in passive money creation, which is inelastic to the supply of reserves, and a large amount of it is made up of loans paid to related individuals and close to the bank. Although this kind of lending reduces the cost of evaluating creditworthiness, it provides new purchasing power to a small part of society who have access to new money earlier than others and are not limited to prudential rules such as the loan-to-value ratio. Analyzing the performance of the banking system in the Iranian economy shows that the amount of loans provided to people with a long-term relationship with the bank is beyond the limits specified in the prudential regulations.

Information asymmetry between the National Iranian Oil Company and International Oil Companies, may causes adverse selection (while contractor selection) and moral hazard (while execution of the contract) in the development contracts of oil and gas fields. Identifying the roots of moral hazards is the prelude to finding solutions to deal with distortion in contracts. in order to prevent inconsistencies in contracts, efforts should be made to align the interests and incentives of the parties to the contract, as well as reducing information asymmetries through monitoring and performance appraisal tools.In this study, using descriptive-analytical method, the findings of economics in the field of contract theory have been used to formulate a more complete contract in order to manage the moral hazard caused by information asymmetry in financing contracts for the development of oil and gas fields. To this end, the application of legal conditions capacity to reduce the client risks relevant to moral hazards caused by information asymmetry has been examined. The most important areas of information asymmetry in the contracts are technical features including basic and detail design of the project, determining the capital cost ceiling and financial resources of the project, the program of financing required funds and the program of repayment of financial resources. In many studies on the subject of comparing different contract forms in aspect of the revenue of National Iranian Oil Company, only the interests of the National Oil Company have been considered in the calculations, which has three objections. First, not paying attention to the interests of the other party in the contracts, because it would be too likely that the oil company will not accept such a contract. The second problem is that even assuming the acceptance of the National Oil Company desired contract by International Oil Company, the existence of information asymmetry between the parties will create the opportunity for the oil company to achieve the expected results of the contract. The third one is that the type of contract itself does not determine the amount of interest earned by the parties to the contract, but the terms of the contract determine the share of the parties to the field revenue. In other words, using the terms of the contract, the same financial results can be achieved from all types of contracts. Considering the above considerations, researchers should focus on the effective use of contract terms in order to manage the risks of information asymmetry in contracts and provide more benefits to the National Iranian Oil Company. In this situation, regardless of which model is chosen for the contract, the inclusion of the desired legal conditions can lead to satisfactory results of the contract. Purposeful and effective application of contract terms in order to reduce conflicts of interest and harmonize the interests of the parties, determine the desired performance indicators in the contract, provide efficient tools to control and monitor the performance of the contractor and defer payment in compensation are the main risk management strategies of the National Iranian Oil Company. At the same time, upgrading the technical and managerial capacity of the National Iranian Oil Company and using the advice of reputable oil companies can reduce information asymmetry in oil and gas development financing contracts in the country and consequently reduce the resulting risks.

Since moral hazard in behaviors of banking system may jeopardize efficiency of debt mechanisms to fund rising, it is important to examine the empirical and theoretical evidences of moral hazard in the Iranian banking system. Risky behavior of banking system is caused by the asymmetric information problems between creditors and central bank. This paper considers the simultaneous effects between changing risk and leverage that justifies existence of moral hazard in the Iranian banking system. To do so, we use dynamic panel data model for the period 2006-2019 in Iranian banking system. According to the obtained results, there is a significant positive relationship between the level of risk and leverage. This relationship implies the existence of moral hazard that can be caused unsuccessfully performance of central bank in supervision and supporting in the banking system.

Despite the prominent role of profit-loss sharing (PLS) contracts in theoretical literature of Islamic banking, the share of these contracts in Islamic banks is still very small. Studies identify the agency problem as the most important barriers to use such contracts in practice. Using a repeated game model, in this paper we show how the existence of a system memory (keeping the history of investment proposals and projects, agents´performance and their ratings) in Islamic banks might alleviate the asymmetric information problem and facilitate the implementation of PLSs.

Asymmetric information in insurance markets leads to adverse selection and moral hazard. The amount of asymmetric information could change over time due to learning. Unlike other insurance contracts, supplementary health insurance contracts in Iran are in group form. Therefore, between group asymmetric information might play an important role. In this article, positive correlation test is used to test presence of between group asymmetric information. Since acute hospital disease category does not have moral hazard, adverse selection is separately identified. Finally, using the temporal variation in insurance contracts, moral hazard is separated from learning. The data is a panel of insurance contracts from Asia Insurance Company, for two types of paraclinical and hospital health services, during the period of 2011-2016. Results show no asymmetric information for acute hospital disease and since there is not any moral hazard, we can conclude no between group adverse selection. For paraclinical services, we find significant evidence for asymmetric information, mainly due to moral hazard. We also found evidence of learning for insured groups.

Moral hazard in contracts, especially international oil contracts, is a key subject under the economics of information. In this article, considering the oil and gas industry specifications, oil contracts and moral hazard models, the proper model for evaluating buy-back contracts. Since moral hazard from both parties could be seen in oil contracts and both are maximizing their profit, despite the standard models, the employer (client) should consider two incentive constraints for both principal and agent. Accordingly, standard model is not proper to evaluate this type of contracts and two sided moral hazard models are more in compliance with oil contracts. The results say that in two sided moral hazard and non observable action of both party, no contracts touch first best conditions. In addition, short term essence of buy-back contracts, predefined proceeds of contract before starting point, fix interest rate, non flexibility of contract and defined obligations before operation, non flexibility of payment method from oil proceeds and lack of comprehensive reservoir study results in lack of incentive for selection of more optimal methods for for development oil fields with higher costs for maximizing mutual interests. Accordingly, buy-back contracts are not a second best optimal contract.

The banking system is one of the pillars of every country's economy, whose efficiency or inefficiency can directly and indirectly affect the performance of its economy. The challenges posed by the usury free banking system are the asymmetric information issue between the bank and the facility applicant in partnership agreements. The existence of asymmetric information leads to the adverse selection and moral hazard in the markets. Since the 1970s, asymmetry of information has become one of the key issues in the economy.
The present research is to answer the question; the factors affecting the formation of moral hazard and adverse selection in partnership contracts used in Specialized banks in usury free banking, using a combination of AHP and TOPSIS math’s and using field data (questionnaire) to examine These hypotheses suggest that several factors such as the lack of attention to the customer credit risk score and the lack of incentive and punishment mechanisms for customers is effective on the formation of moral hazard and adverse selection. The results of the research indicate that the abovementioned factors have a greater effect on moral hazard and adverse selection. Supervision and control have the most important effect and widespread use of civic participation contracts has the least importance in moral hazard and adverse selection.

The presence of asymmetric information is an important source of efficiency loss for insurance companies and could reduce profitability. In this paper, we test the conditional independence of coverage choice and risk, where “conditional” means conditional on all variables observed by the insurer. We use two parametric a pair of probits and a bivariate probit model. The data includes all third-party and hull policies as well as claims data for private automobiles during 2013-2016. The data are derived from the administrative database of a small insurance company in Iran. Once we control for individuals’ risk aversion by limiting our test to subsamples of individuals who only bought minimum third-party insurance, we find evidence for the presence of asymmetric information. Based on our results, those who bought hull and third party insurance have higher risk of accident in comparison to those who only bought third party insurance. The existing premiums does not fully compensate for this extra risk.

Although the average statutory tax rates are not significantly different between developed and developing countries, tax to GDP ratio in the former is almost twice as much as the latter. What does explain this sharp difference? The main argument is that tax administration's accessibility to taxpayers information, of course after controlling the effects of GDP composition, inflation, and quality of government, will influence government's tax power and increase tax compliance. To examine the effect, we have studied 47 developing countries during the period of 2006 to 2013 and employed a (cross-section weights) GLS method to estimate panel model. Results indicate that information sharing have positive and significant effect on the ratio of tax to GDP and implies that the recent tax reform which regulates tax authoritie's accessibility to taxpayer's information, will improve government's tax power.

Nowadays, banking system plays an important role in the economy. In fact, the banks are the service institution that their main task is collecting deposit and lending the credits. One of the principal challenges to the banking system is the improper allocation of credit, which induces credit diversion. The credit diversion occurs due to asymmetric information before and after the lending credit in the partnership and exchange contracts. In this study, we examine credit diversion in 32 areas within the bank A during 2007-2016 with a descriptive-analytical approach. The results show that over these years despite the increase in the number and amount of the credit, the number of cases of credit diversion without supervision greatly reduced.

Contracts, exchanges and trade-offs are the necessary and unavoidable part of social life of human. Although from old times, ýsocieties have always tried to go legalized to reach security, social peace, public discipline and preparing and maintaining people’s benefits, but as human needs and wants are naturally alike, there have always been struggle to gain more profits and welfare. Islam also has paid attention to this subject. This paper through a descriptive-analytical methodology, studies the effect of jurisprudential (fiqhi) effects of business like banning the hoarding (ihtikar), banning the najsh, banning the deceit (gharar), banning the collusion for overcharging and … on removing the information asymmetry and related misuses and based on this study, presents a pattern of exchange system from the viewpoint of Islam. Studying Islamic resources including Quran, tradition (sunnat), reason (aql) and consensus (ijma), shows that in a society that rules and real criteria of Islam dominates and the culture and behavior of its’ people is based on Islam rules, the society will have a clear space and all the people will have an equal access to information. No one will go toward hiding the information and misusing it on behalf of himself/herself. Lying, deception, breach of promise will have no place in such a society and in opposition, the truth, transparency and loyalty to contracts will substitute; jurisprudential (fiqhi) rules also confirm this subject.

In real world, taxpayers have private information of which tax agencies are either completely or partly not aware of. This issue gives rise to the so-called asymmetric information problem, seriously preventing tax laws from being justly and efficiently enforced. Asymmetry of information motivates taxpayer towards falsifying or concealing information, trying to enjoy benefits of failure to pay taxes (moral hazard); furthermore, by granting licenses to bad economic operators for operating as authorized economic operators, law-abiding companies may leave licensed and authorized market (adverse selection). It is obvious that, information sharing and availability of databases containing taxpayers’ information can help governments in recognizing and collecting taxes in a justly and fair manner. In this paper, using statistics from 92 countries during 2006 – 2012 (in the form of panel data), we have studied the effects of information sharing variables on tax-to-GDP ratio. The findings indicate that, information sharing has a positive, yet statistically insignificant, effect on the ratio, which is in agreement with theoretical foundations.

By considering the different importance of collateral variable in Islamic and in conventional banking, theoretical and experimental studies show that the necessary convergence in the credit relationship between bank and customer has not been achieved. In this article, in addition to the explaining feasibility of studying and accepting empirical role of collateral in commercial profit - loss sharing contracts, we have studied the dual role of collateral as screening and motivation tool in banking relations. We have also used credit data of Bank Refah Kargaran with application of Logit estimation to test our hypotheses regarding the role of collateral. Based on our results, the hypothesis that borrowers with lower risk have provided safer collateral, has been confirmed. This result shows the existence of adverse selection phenomenon. So, low-risk individuals tend to send signals of their quality and reveal their situation to banks. In addition, other economic and social variables of contract could use the potential of signaling and contribute to reduce the role of collateral. In the data under consideration, except for the variable of account historyinterest rate, this hypothesis was rejected and other economic and social variables have failed to have the expected impact.

Transparency and asymmetric information is one of the basic assumptions of competitive market, but in the real world person's information are not symmetrical and equal and phenomenon of asymmetrical information is evident. However, sometimes asymmetric information is as natural and artificial forms and the parties earn maximum profit by misusing additional information with respect to the other party. In this article, phenomenon of asymmetric information and ways to prevent it is investigated by using content analysis method and also by referring to the Koran verses and Islamic jurisprudence by using the knowledge of Islamic economics. The results show that according to the Koran verses and jurisprudential rules asymmetric information is a subject which not only in muslim communities but also in nonMuslim communities is visible. But in Muslim societies due to the terms of trade in the contracts, abuse of this this phenomenon is relatively less. These terms including considering the Terms of the parties, contract issue, properly condition, as well as compliance with the religious, Isalamic moral governance, Guidance and supervision of government, remember of Allah and the fear of the resurrection day, concentrating on ethics in the market, authorizing the termination to swindle person, considering some jurisprudential rules (Prohibit from trading Gharar and pride and …). Islamic governing should more careful monitor the validity of the contract to prevent this phenomenon and abuse of it.

In recent years, the role and importance of information have been quickly entered into the theories and policies. All reforms of health policies, including voluntary health insurance are necessarily in need of addressing the problem of asymmetric information.The present study examined the relationship between health risk and the probability of voluntary health insurance using probit model. Then, the causes of the correlation between voluntary health information and health risk were identified by ordered probit model. The results of the study show a negative correlation between health risk and probability of voluntary health insurance which is related to moral hazards in insurance market. The main reason is the incompetence and inefficiency of insurance system. According to the study, the negative correlation is related to the information that insurance companies obtained and screenings in the insurance market by choosing strategies for dealing with moral hazard not the heterogeneous risk preferences of individuals.

An essential feature of interest- free banking is the use of partnership contracts in financing the applicants. The real implementation of these contracts causes the banks to confront some problems, such as adverse selection and moral hazard, which are primarily rooted in the lack of symmetric information between the bank and the applicant. Using a descriptive-analytical method, this study seeks, within the framework of basic research model which comes under the theory of contracts (the aspect of the theory of motivations) to provide a clearer explanation of the problem of information asymmetry in partnership contracts and solve part of it. According to this model, when there is asymmetric information in the contracts, if the contracts serve the purposes of the different applicants with whom the bank deals are made within the framework of the principle of clarification, not only the profit expected by the bank can rise to peak level, but also the problem of adverse selection can be solved by stimulating the applicants by making contracts prepared for each particular one. These contracts, which suggest the probability of obtaining a loan from the limited resources of the banks and amount of repayment for each specific applicant, are extracted from the bank's maximization of the expected profit. In the present study, taking in to account the characteristics and conditions of signing partnership contracts, a model is proposed for these contracts by making some changes in the basic model in three stages with the aim of solving the problem of adverse selection that results from asymmetric information.

Financial development and growing significance of financial competition, implicate study of ethical processes in financial institutes. Therefore in this article we first study effect of ethic in management of financial institutes and also analyse side effect of precept organizational ethic in facilitating managerial operations as a new approach of ethic as an advantage of competition. As a part of this analysis we determined some hypothesis about relation between ethic and compatible managerial style in four extent of creating, saving, transferring and suitable instrumenets of value in financial institutes.

Pricing and risk sharing in oil and gas service contracts such as buyback has always been the most important challenges in the contracting design. Asymmetric information leads to agency costs such as moral hazard and adverse selection and the process of contracting is complicated. In this paper, by using of agency theory, the process of buy-back contracts is modeled between the National Oil Company (NOC) and International Oil Company (IOC) with regard to moral hazard in case of risk averse and risk-neutral contractor. Finally, Mathematical modeling techniques are used to provide analysis of agency costs, and then optimal contract is extracted. An optimal contract is a contract in which the contractor will bear part of the increased costs. The results show that there is not corner solution for offering a contract, but the equilibrium relationship can be created between moral hazard, competition in the bidding and sharing the risk.

Asymmetric Information in Iran’s Insurance Market: Case Study for Automobile Insurance in Iran Insurance Company This research aims to test the presence of asymmetric information by using the dynamic information of automobile policyholders in the Iran Insurance Company (IIC). The Conditional Independence test is conducted by Bivariate Probit model، the dynamic properties which are presented for bonus/malus system is tsted by a Dynamic Bivariate Probit model. Making use of a sample of 86637 policyholders in IIC، Our finding confirms positive correlation between risk and coverage in Bivariate Probit Model، which supports presence of asymmetric information. Also، there is a negative correlation between claim in the periods of t and t-1 in Dynamic Bivariate Probit model، where confirms that behavior of the insurance policy holders are subject to moral hazard.