Explain the difference between adverse selection and moral hazard in insurance m

Question

Explain the difference between adverse selection and moral hazard in insurance markets. Can one exist without the other? Adverse selection occurs before the policy is purchased. High-risk consumers are more likely to purchase insurance. Moral hazard occurs after the policy is purchased. If policy holders are fully insured, they have little incentive to avoid risky situations. They are inextricably linked such that if one is present so is the other. Moral hazard occurs before the policy is purchased. High-risk consumers are more likely to purchase insurance. Adverse selection occurs after the policy is purchased. If policy holders are fully insured, they have little incentive to avoid risky situations. They are inextricably linked such that if one is present so is the other. Moral hazard occurs before the policy is purchased. High-risk consumers are more likely to purchase insurance. Adverse selection occurs after the policy is purchased. If policy holders are fully insured, they have little incentive to avoid risky situations. Although it is likely that both will exist it is theoretically possible to eliminate one and still have the other. Adverse selection occurs before the policy is purchased. High-risk consumers are more likely to purchase insurance. Moral hazard occurs after the policy is purchased. If policy holders are fully insured, they have little incentive to avoid risky situations. Although it is likely that both will exist, it is theoretically possible to eliminate one and still have the other.

Explanation / Answer

Option D is correct.

Adverse selelction occurs before the insurance is purchased and the moral hazard is occurs after the policy is purchased. It is possible to eliminate one and still have the other one. This can be done by having pre-determined list of health problems accpeted in case of health insurance or other lists which includes the damages. Setting up high premiums can also avoid the risk.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.