Moral Hazard

Economists have a concept that a person insulated from risk may behave differently than if they are directly exposed to risk. This moral hazard is highly applicable to the subprime, credit mess that is prevailing today; but the concept can also be applied to organizations where management is shielded from the impact of poor decision making.

This is a fascinating concept and can be applied to any number of life events. If you know you can't get a speeding ticket, will you speed? Malcolm Gladwell, author of Blink and The Tipping Point has a good article here on how this affects health care.

The most interesting application I found is how this permeates large matrix organizations where often there is no clear accountability. There can usually be nuanced reasons for poor results such as market conditions, competitive threats, competing priorities, etc and a lack of accountability for results or consequence for poor results.

Jack Welch
had a way to manage this....
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