(a) To state: The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

Question

a. If a pay-as-you-drive insurance program is being implemented to cope with automobile-related externalities associated with driving, what factors should be considered in setting the premium? b. Would you expect a private insurance company to take all these factors into account? Why or why not?

Answer 1

Question

Chapter 8, Problem 10P

To determine

(a)

To state:

The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

To determine

(b)

To state:

The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

To determine

(c)

To state:

The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

To determine

(d)

To state:

The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.

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a. If a pay-as-you-drive insurance program is being implemented to cope with automobile-related externalities associated with driving, what factors should be considered in setting the premium? b. Would you expect a private insurance company to take all these factors into account? Why or why not?

Place an “M” beside the items in the following list that describe a moral hazard problem and an “A” beside those that describe an adverse selection problem a. A person with a terminal illness buys several life insurance policies through the mail. b. A person drives carelessly because she has automobile insurance. c. A person who intends to torch his warehouse takes out a large fire insurance policy. d. A professional athlete who has a guaranteed contract fails to stay in shape during the off season. e. A woman who anticipates having a large family takes a job with a firm that offers exceptional child care benefits.

Which of the following is an example of moral hazard? Group of answer choices A. Reckless drivers are the ones most likely to buy automobile insurance. b. Retail stores located in high-crime areas tend to buy theft insurance more often than stores located in low-crime areas. C. Drivers who have many accidents prefer to buy cars with air bags. D. Employees recently covered by the company health plan start going to the doctor every time they get a cold. E. Company divisions try to improve profitability at each other's expense.

Answer 2

Question

Chapter 8, Problem 10P

To determine

(a)

To state:

The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

To determine

(b)

To state:

The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

To determine

(c)

To state:

The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

To determine

(d)

To state:

The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.

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Answer 3

Question

Chapter 8, Problem 10P

To determine

(a)

To state:

The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

To determine

(b)

To state:

The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

To determine

(c)

To state:

The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

To determine

(d)

To state:

The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.

Expert Solution & Answer

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Answer 4

Question

Chapter 8, Problem 10P

To determine

(a)

To state:

The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

To determine

(b)

To state:

The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

To determine

(c)

To state:

The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

To determine

(d)

To state:

The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.

Expert Solution & Answer

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Answer 5

Chapter 8, Problem 10P

To determine

(a)

To state:

The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

To determine

(b)

To state:

The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

To determine

(c)

To state:

The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

To determine

(d)

To state:

The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.

Answer 6

Chapter 8, Problem 10P

To determine

(a)

To state:

The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

Answer 7

Chapter 8, Problem 10P

To determine

(a)

To state:

The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

Answer 8

To determine

(b)

To state:

The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

Answer 9

To determine

(b)

To state:

The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

Answer 10

To determine

(c)

To state:

The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

Answer 11

To determine

(c)

To state:

The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

Answer 12

To determine

(d)

To state:

The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.

Answer 13

To determine

(d)

To state:

The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.

Answer 14

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Answer 15

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Answer 25

Ch. 8 - Prob. 1P Ch. 8 - Draw a standard supply and demand diagram for...Ch. 8 - Prob. 3P Ch. 8 - Prob. 4P Ch. 8 - Prob. 5P Ch. 8 - Prob. 6P Ch. 8 - Prob. 7P Ch. 8 - Prob. 8P Ch. 8 - Prob. 9P Ch. 8 - Prob. 10P

(a) To state: The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

Solution Summary: The author explains that an insurer can know about the seriousness of moral hazard if the policyholder is willing to pay a large deductible.

Concept explainers

(a)

To state:

The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

(b)

To state:

The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

(c)

To state:

The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

(d)

To state:

The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.

Chapter 8 Solutions

(a) To state: The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

Solution Summary: The author explains that an insurer can know about the seriousness of moral hazard if the policyholder is willing to pay a large deductible.

Concept explainers

(a) To state: The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

(b) To state: The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

(c) To state: The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

(d) To state: The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.

Chapter 8 Solutions

(a)

To state:

The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.

(b)

To state:

The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.

(c)

To state:

The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.

(d)

To state:

The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.