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Hidden action refers to a situation in which one party in a transaction or relationship takes actions that are not observable by the other party, leading to potential inefficiencies or conflicts of interest. This concept is often discussed in the context of economics and contract theory, where one party may engage in behaviors that affect the outcomes of a contract without the other party's knowledge. For example, an employee may not exert full effort on a job because their employer cannot directly monitor their work. Such situations can result in moral hazard, where the lack of transparency leads to suboptimal decisions.

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4mo ago

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