Using Monitoring to Reduce Moral Hazard: The final section in this chapter examines the role of monitoring as a tool to manage the problem of moral hazard.  Monitoring, combined with penalties or ‘hostages’ (see pp. 524-525), can act as an efficient mechanism for managing the asymmetric information problem.  However, as the authors point out, these techniques are not without costs as well.  Therefore, as is true with any economic decision, the costs and benefits must be balanced in order for good decisions to be made.