10.2. Missing insurance markets. There are many missing insur- ance markets. Consider the following examples and discuss whether absence of insurance is due to moral hazard or to adverse selection (H/T Ray Fisman). Focus on three of the examples below. (a) Divorce. (b) Giving birth to twins. (c) Catastrophic long-term medical care. (d) Missing a flight. (e) Mountain climbing accident. (f) Handgun liability. (g) Failing to become the CEO at a Fortune 500 company by the age of 50.

10.2. Missing insurance markets. There are many missing insur- ance markets. Consider the following examples and discuss whether absence of insurance is due to moral hazard or to adverse selection (H/T Ray Fisman). Focus on three of the examples below. (a) Divorce. (b) Giving birth to twins. (c) Catastrophic long-term medical care. (d) Missing a flight. (e) Mountain climbing accident. (f) Handgun liability. (g) Failing to become the CEO at a Fortune 500 company by the age of 50.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter27: The Basic Tools Of Finance

Section: Chapter Questions

Problem 5PA

See similar textbooks

Similar questions

How might adverse selection make it difficult for an insurance market to operate?
In an insurance system, would you expect each person to receive in benefits pretty much what they pay in premiums or is it just that the average benefits paid will equal the average premiums paid?
4. What kind of liability insurance protects you now as an EMT and as a student paramedic in your clinical sites? 5. At the scene of a shooting, you can see a patient with slow, gasping respirations, but the police will not let you enter the crime scene. How will you feel? 6. Your patient is critical, and you cannot secure the airway. Medical direction tells you to divert because they have no ICU beds. You repeat the urgency of your patient's condition and are still told to divert. You elect to override the physician's order and transport to that hospital. Can you justify disobeying the physician's order! .
Is the decision to buy pet insurance strictly an economic decision? Explain.
1)Describe an example of moral hazard that we may run into in the real world. Think of something that is legal and not inherently lethal, yet still demonstrates elevated risk for the participant who would likely act safer if insurance or protection was not available. Explain why someone might take this risky action. What are the benefits to the risky behavior? In your response to two of your peers, explain what an insurance company may do to reduce the likelihood that an individual would take this risk. Keep in mind, that we cannot always just deny coverage if an individual is participating in the risky behavior.
Many people in the property and liability insurance industry complain about the “automobile problem.” The “automobile problem” consists of a series of interrelated problems. What factors have combined to produce a problem in the automobile insurance area?
(1) How would a private insurance carrier respond to a client that always took extreme risks and frequently submitted large claims?
Which of he following sections of an insurance contract limits coverage? A.Waiver of Premium B.Conditions C.Exclusions D.Declarations
___ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals a. Guaranteed renewability b. Cherry-picking c. Moral Hazard d. Asymmetric Information e. Adverse Selection
Nathan's income in a typical year is 75,000. There is a 10 percent chance that Nathan will be seriously ill next year, incurring 15,000 in medical expenses. Samantha also earns 75,000 in a typical year. Her chance of becoming seriously ill next year and incurring ur 15,000 in medical expenses is 20 percent. a. Calculate the actuarially fair premium for full insurance for (i) Nathan and (ii) Samantha. b. Suppose that a private insurance firm cannot distinguish between Nathan and Samantha in terms of their risk and assumes the risk of being seriously ill in the general population is 10%. In this context, discuss the adverse selection problem the firm might face. c. Can a compulsory, government - run health insurance program avoid the problem of adverse selection? Explain why or why not.
Explain the purpose of insurance. If a mother purchases health insurance for her and her four (4) children, who is the policyholder, and who is (are) the beneficiaries?
If people get higher pay from insurance than their premiums. Will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse seletion? How will an insurance company deal with these problems?