Microeconomics · free preview
Moral Hazard
After the contract is signed, actions hide, insured drivers drive faster, employed managers browse longer, and deductibles, incentives and monitoring are the tools that line up private behavior with the deal's terms.
1. The second information problem
The second information problem
2. The deductible's second job
The deductible's second job
3. Principal and agent
Principal and agent
4. Where the repair fails
Where the repair fails
5. Hidden action
Which of the following is moral hazard rather than adverse selection?
6. Designing the repair
Why do real insurance contracts include deductibles and copays even though full coverage would share risk best?
7. The drift in claims
Before coverage, a driver expects 400 dollars of accident losses per year and drives carefully. With full coverage, less careful driving raises expected losses to 900 dollars per year. Compute the increase in expected losses caused by the insurance, in dollars, and write the number.
8. Naming the problem
Which of the following is moral hazard rather than adverse selection?
9. The deductible's second job
Why do real insurance contracts include deductibles and copays even though full coverage would be more complete protection?
10. The hazard's price tag
Before coverage a careful driver expects 300 dollars of accident losses a year, but after buying full insurance she drives less carefully and expects 700. Compute the annual behavior-induced increase in expected losses, and write the number.
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