Today in class when we were working the case, professor introduced the problem of ‘Moral Hazard’ in Managerial Accounting. To better explain the idea of moral hazard professor brought up an example of rental cars.
First he mentioned quite common stuff: people often do not care much about rental cars and drive them rather negligently, if not recklessly, accelerating over the speed bumps, leaving smoking burns on the interior and all that “usual” stuff. However, he brought a couple examples that I never heard and would not even think of. He claimed that those things really happen, so I will take it and give it to you as it is.
Professor asked what would we do if the tires on our personal car got worn out and needed replacement. For one thing, you would go to buy the new set of tires. Also, you can rent the car for a day and exchange the worn out tires from your car with the tires from the rental car. Or, if you need a new engine in your car, you might as well replace your engine with the engine from the rental. As professor said, usually cars are checked for interior and exterior obvious damage when returned to rental office. Tires and the stuff under the hood is normally not checked, which is true based on my experience with rentals.
Anyways, I found those examples extremely peculiar. The case with tires seems to be quite plausible. For engine replacement it would probably require a team of professional car thieves/mechanics. But people do all kind of weird stuff, so some might as well do that too.
I looked up moral hazard formal definition:
Moral hazard occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk.
Or another one: moral hazard is a concept saying that people will take risks if they have an incentive to do so. The idea is that people might ignore the moral implications of their choices. Instead, they will do what benefits them the most.
Professor made a disclaimer at the end of those examples, that they are not to give us any ideas, just for illustration purposes 
