Which of the following make(s) insurance premiums higher than otherwise? a. adverse selection and moral hazard...

Which of the following make(s) insurance premiums higher than otherwise?

adverse selection and moral hazard

adverse selection, but not moral hazard

moral hazard, but not adverse selection

neither adverse selection nor moral hazard

Solutions

Expert Solution

The correct option will be a) adverse slection and moral hazard.

Both are assymetric information and both the problem create losses more than otherwise due to some hidden information.

There is a difference between Adverse selection and moral hazard, but premium increase in both the situations.

Moral hazard occurs when there is asymmetric information between two parties and change in the behavior of one party after a deal is taken place. Adverse selection occurs when there's a lack of symmetric information prior to a deal between a buyer and a seller.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

What are adverse selection and moral hazard?

Moral Hazard and Adverse Selection. How does opting for the insurance on the rental change a...

Moral Hazard and Adverse Selection. How does opting for the insurance on the rental change a person's perception of risk?

We'll discuss the innate problems of adverse selection and moral hazard in health insurance. The problem...

We'll discuss the innate problems of adverse selection and moral hazard in health insurance. The problem of adverse selection is about asymmetric (unequal) information among opposite parties involved in a transaction. Note, this problem is not just about uncertainty; it is about the risks arising from asymmetric information. As risks increase from adverse selection and/or moral hazard, so do insurance premiums. As an illustration of asymmetric information in health care insurance marketplace, patients and doctors know more about the health...

Identify each of the following as an adverse selection or a moral hazard problem: Instructions: In...

Identify each of the following as an adverse selection or a moral hazard problem: Instructions: In each case, very briefly (one sentence or two) state the reason for your choice. a) A person with car insurance fails to lock his car doors when he shops at a mall. b) A person with family history of cancer purchases the most complete health coverage available. c) A person with health insurance takes more risks on the ski slopes of Aspen than he...

Why is health insurance necessary? Explain how adverse selection and moral hazard are different, and give...

Why is health insurance necessary? Explain how adverse selection and moral hazard are different, and give an example of each. Why do employers provide health insurance coverage to their employees? There is a 1 percent chance that you will have healthcare bills of $100,000; a 19 percent chance that you will have healthcare bills of $10,000; a 60 percent chance that you will have healthcare bills of $500; and a 20 percent chance that you will have healthcare bills of...

Explain how moral hazard and adverse selection each affect insurance markets. For concreteness, focus on the...

Explain how moral hazard and adverse selection each affect insurance markets. For concreteness, focus on the auto insurance market. What are the implications of these concepts for the kinds of policies that are available for consumers? How do insurers and markets try to “solve” or overcome the issues presented by these concepts? Use graphical analysis when appropriate.

2 examples of moral hazard and adverse selection. except: Insurance, dating, hiring, loaning money.

In each of the following cases, identify whether the problem is adverse selection or moral hazard...

In each of the following cases, identify whether the problem is adverse selection or moral hazard and explain your answer. How might the problem be dealt with? Rick has gotten a large advance to write a textbook. With the money in hand, he prefers spending his time sailing rather than sitting in his office working on the book. Justin is trying to get a large advance to write a textbook. He knows, but publishers don’t, that he did poorly on...

In each of the following cases, identify whether the problem is adverse selection or moral hazard,...

In each of the following cases, identify whether the problem is adverse selection or moral hazard, and explain your answer. How might the problem be dealt with? Rick has gotten a large advance to write a textbook. With the money in hand, he prefers spending his time sailing rather than sitting in his office working on the book. David is trying to get a large advance to write a textbook. He knows, but publishers don’t, that he did poorly on...

Briefly discuss the similarities and differences between Adverse Selection and Moral Hazard.

Subjects