Asked by Kaitlyn Conigliaro on Apr 27, 2024
Verified
Moral hazard can be reduced by:
A) the use of 100% insurance coverage.
B) imposing a deductible on insurance coverage.
C) taking away personal stakes for people with private information.
D) offering fewer incentives to people with private information to act in a less risky manner.
Moral Hazard
A situation in which one party is more likely to take risks because they do not bear the full consequences of their actions, often due to information asymmetry.
Deductible
The amount paid out of pocket by the policyholder before an insurance company pays a claim.
Insurance Coverage
The amount and types of risk or liability that are covered for an individual or entity by insurance services, against losses.
- Understand the notion of moral hazard and its influence on market performance.
- Comprehend how the characteristics of insurance policies, such as deductibles, influence consumer actions.
Verified Answer
KL
Kylie LoegeringApr 28, 2024
Final Answer :
B
Explanation :
Imposing a deductible on insurance coverage can reduce moral hazard as it requires the insured individual to bear a portion of the cost of any damage or loss, making them less likely to engage in risky behavior. This increases personal stakes and incentivizes individuals to act in a more responsible and careful manner. Option A increases moral hazard by eliminating personal cost to the insured, Option C and Option D don't directly address the issue of moral hazard.
Learning Objectives
- Understand the notion of moral hazard and its influence on market performance.
- Comprehend how the characteristics of insurance policies, such as deductibles, influence consumer actions.