Asked by Giovanni Magana on May 14, 2024
Verified
Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the
A) principal-agent problem.
B) adverse selection problem.
C) moral hazard problem.
D) free-rider problem.
Moral Hazard
Moral hazard occurs when an individual or entity has a tendency to take more risks because the negative consequences of those risks will be partially or fully borne by others.
Airbags
Safety devices in vehicles designed to inflate rapidly in the event of a collision to prevent occupants from striking interior objects or being ejected from the vehicle.
Reckless Driving
Operating a vehicle in a dangerous manner that disregards the safety of others, often resulting in legal penalties.
- Become familiar with the key concepts of adverse selection and moral hazard relevant to the operations of insurance markets.
Verified Answer
Learning Objectives
- Become familiar with the key concepts of adverse selection and moral hazard relevant to the operations of insurance markets.
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