Health Economics
14th Edition
ISBN: 9781137029966
Author: Jay Bhattacharya
Publisher: SPRINGER NATURE CUSTOMER SERVICE
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Question
Chapter 7, Problem 12AP
(a)
To determine
Determine the final income, if individual P ends getting sick.
(b)
To determine
Explain the effect of standard contract on individual T’s expected income.
(c)
To determine
Explain whether the contract is fair or full for individual J.
(d)
To determine
Determine the set of possible value for individual R’s
(e)
To determine
Determine the upper bound for p and a lower bound for
(f)
To determine
Determine whether the given statement is true or false.
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Now consider a different insurance company that does not have the inclination to tailor contracts specifically to individuals. Instead, it will offer a “standard contract” with the premium r =$100 and payout q=$500 to anyone who will purchase it. a. Peter has healthy-state income IH = $500 and sick-state income IS = $0. He has probability of illness p=0.1. Is the standard contract fair and/or full for Peter? If he ends up getting sick, what will his final income be? b. Tim has IH = $500 and IS = $0, but a probability of illness p = 0.2, higher than Peter’s. Is the standard contract fair and/or full for Tim? How does purchasing the standard contract affect Tim’s expected income?c. Jay has IH =$1, 000 and IS =$0, with probability of illness p=0.2. Is the standard contract fair and/or full for Jay?d. Suppose there is a customer named Ronald for whom the standard contract is partial and actuarially unfair in the insurance company’s favor. Give a set of possible values for Ronald’s IH, IS,…
Suppose a company offers a standard insurance contract with a premium (r) of $2,000 and a payout (q) of $10,000. Suppose that Adelia earns a healthy state income of $70,000, a sick state income of $50,000, and has a 20% chance of becoming ill. For Adelia, this insurance contract would be:
A. actuarially fair and partial
B. actuarially fair and full
C. actuarially unfair and full
D. actuarially unfair and partial
Under symmetric information, competitive insurance markets would offer
A) complete coverage to high and low risks but, respectively, with high and low
premia.
B) incomplete coverage to both high and low risks.
C) complete coverage to high and low risks but, respectively, with low and high
premia.
D) complete coverage to low and incomplete coverage to high risks.
E) complete coverage to high and incomplete coverage to low risks.
Knowledge Booster
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