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Former Philippines president Marcos authorized construction of a new nuclear power plant on a known earthquake fault line in the providence of Bataan in the Philippines
Former Philippines president Marcos authorized construction of a new nuclear power plant on a known earthquake fault line in the providence of Bataan in the Philippines. The projected $500 million power plant was to be constructed by Westinghouse. The project was backed by EXIR-a U.S. government backed Export Credit Agency - which guaranteed Philippine loan to Westinghouse. The actual project cost amounted to $2.3 billion. Westinghouse was paid despite the fact that the nuclear plant never went online since it was built on a fault line. This illustrates an example of?
Expert Solution
The given situation is an example of moral hazard which states that the party takes a risk when dealing with the other party due to the faith on that party and has lesser information about the intentions of the other party. Here, the Export Credit Agency guaranteed loan to Westinghouse for the construction of a new nuclear power plant without knowing that the plant was built on a fault line. Westinghouse may have more information about the land than the Export Credit Agency; therefore, it is the example of moral hazard.
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