In a market for housing insurance against wildfires, the adverse selection model would predict that. (pick all that are correct) O only the households with lowest risk of wildfires would buy insurance in the resulting equilibrium. the insurance premium would be gradually decreasing as households in more dry areas exit the market. the insurance premium would be gradually increasing as households in less dry areas exit the market. households in less dry areas would underinsure or exit the market. households in less dry areas would overinsure relative to social optimum. Question 8 Below are several statements about adverse selection and moral hazard. Pick all that are correct: | After purchasing insurance, an agent is more likely to engage in risky behavior because they have shifted part of their personal costs of risk towards the insurer. One way to alleviate the problem of moral hazard is to engage in market segmentation, bundling potential purchasers based on common characteristics. Requiring car drivers to use a "snapshot tool" (e.g. accelerometer) is one way for insurance companies to alleviate the problem of adverse selection. Adverse selection leads to fewer socially beneficial trades than in a situation where agents have perfect information.
In a market for housing insurance against wildfires, the adverse selection model would predict that. (pick all that are correct) O only the households with lowest risk of wildfires would buy insurance in the resulting equilibrium. the insurance premium would be gradually decreasing as households in more dry areas exit the market. the insurance premium would be gradually increasing as households in less dry areas exit the market. households in less dry areas would underinsure or exit the market. households in less dry areas would overinsure relative to social optimum. Question 8 Below are several statements about adverse selection and moral hazard. Pick all that are correct: | After purchasing insurance, an agent is more likely to engage in risky behavior because they have shifted part of their personal costs of risk towards the insurer. One way to alleviate the problem of moral hazard is to engage in market segmentation, bundling potential purchasers based on common characteristics. Requiring car drivers to use a "snapshot tool" (e.g. accelerometer) is one way for insurance companies to alleviate the problem of adverse selection. Adverse selection leads to fewer socially beneficial trades than in a situation where agents have perfect information.
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.8P
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Transcribed Image Text:In a market for housing insurance against wildfires, the adverse selection model would predict that.
(pick all that are correct)
| only the households with lowest risk of wildfires would buy insurance in the resulting equilibrium.
the insurance premium would be gradually decreasing as households in more dry areas exit the market.
the insurance premium would be gradually increasing as households in less dry areas exit the market.
| households in less dry areas would underinsure or exit the market.
| households in less dry areas would overinsure relative to social optimum.
Question 8
Below are several statements about adverse selection and moral hazard. Pick all that are correct:
| After purchasing insurance, an agent is more likely to engage in risky behavior because they have shifted part
of their personal costs of risk towards the insurer.
One way to alleviate the problem of moral hazard is to engage in market segmentation, bundling potential
purchasers based on common characteristics.
|Requiring car drivers to use a "snapshot tool" (e.g. accelerometer) is one way for insurance companies to
alleviate the problem of adverse selection.
Adverse selection leads to fewer socially beneficial trades than in a situation where agents have perfect
information.
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