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In: Economics

Which of the following is an example of moral hazard? 1. a buyer who makes a...

Which of the following is an example of moral hazard?

1. a buyer who makes a large raise in a bid at an auction to discourage other bidders. 2. a doctor who performs a large number of in-office tests and is paid per test. 3. an elderly couple who elect a generous medical insurance policy 4. a board of direcgtors that is trying to refine the compensation system for its CEO

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Expert Solution

Moral hazard occurs due to asymmetric information. When one party in a transaction takes risky actions or gains at the cost of other party.

Since doctors have more information about the medical treatment than the patient. When doctors suggest large number of in office test which will be paid by the patients, it is a case of moral hazard.

Answer-. 2. a doctor who performs a large number of in-office tests and is paid per test.

Rahul Sunny answered 2 years ago
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