Explain why the Health Insurance or Car Insurance Industry has a Moral Hazard problem?

Expert Solution

In the case of moral hazard, the insured person takes an increased level of risks because of the fact that he/she does not need to bear the consequences of the increased risks because of insurance. Therefore, when someone has health insurance, he/she is more likely to have an unhealthy lifestyle knowing that the insurer will pay the healthcare expenses in case of health issues. In the car industry, when someone has car insurance, he/she is like to drive more carelessly knowing that the cost of any damage to the car due to the accident will be compensated by the insurer. Therefore, these industries have a moral hazard problem.

Rahul Sunny answered 1 year ago

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Explain why the Health Insurance or Car Insurance Industry has a Moral Hazard problem?

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