An Economic Analysis of
Financial Structure
Why do Financial Institutions Exist?
(Why is Indirect Finance so Important?)
Chapter 8
Chapter Preview
W e take a closer look at why financial institutions exist and how they promote economic efficiency.
Topics include:
• A Few Basic Facts About Financial Structure
• Transaction Costs
• Asymmetric Information: Adverse Selection and
Moral Hazard
Chapter Preview (cont.)
• The Lemons Problem: How Adverse Selection
Influences Financial Structure
• How Moral Hazard Affects the Choice Between
Debt and Equity Contracts
• How Moral Hazard Influences Financial
Structure in Debt Markets
1
Basic Facts About Financial Structure
Throughout the World
• The chart on the next
…show more content…
Occurs when one party has an incentive to behave differently once an agreement is made between parties
2.
After transaction occurs
3.
Hazard that borrower has incentives to engage in undesirable (immoral) activities making it more likely that won't pay loan back
6
Health Insurance
• Symmetric Information: Suppose, if you get sick, drugs cost $10,000/year
• Everyone has a 1/10 chance of getting sick
• Solution - Insurance will be offered at $1,000 per year Health Insurance – Symmetric Information continued • Suppose 10% of the population (2 out of 20) is sickly and has a 50%(1/2) chance of getting sick
- independent.
• Other 90% (18 people) only has 1/18 chance of getting sick.
• This information in known to everyone.
• How do you price the insurance?
Health Insurance – Symmetric Information continued • Sickly types pay?
• Healthy types pay?
7
Health Insurance - Asymmetric Information
Adverse Selection
• Same as previous example, but one’s type
(sick or healthy) is private information.
Suppose insurance company
1. Why does the Indian classical tradition dominate the musical image of South Asia in the west?
Nevertheless, parties became necessary in order to get things done in government, e.g., Hamilton's financial plan and support for Jefferson's Louisiana Purchase.
Capital can come from state and corporate pension funds, public and private endowments and personal investors
Causes of the Russian Revolution 2 - What were the causes of the Russian Revolution? (n.d.).
In 1954, Congress passed legislation allowing employers to provide health insurance benefits to employees on a tax-free basis (Sih and Singh 99). This legal provision marked the beginning of the rapidly expanding health care costs still apparent today due to the major incentives provided by the government to obtain employer-based health coverage. The overwhelming popularity of employer-based health insurance has led to a serious market inefficiency resulting from the system of third-party payment. As individuals rely on their insurance companies to pay for their medical expenses, this provides
Epidemiology defined: The basic science of public health in which the causing factor, population, frequency, and relevant intervention is found in the case of an outbreak.
16. What family of instruments were the most important? The string family was the most important instrumental family in a Baroque orchestra.
The nutritional dietary consumption of carbohydrates is between 55-75% for the vast majority of the global population as their main source of food intake and energy. And the general populous continues to be misinformed by government agencies regarding what a normal, healthy diet, should be, as well as what a balanced diet looks like. Eating a low-carb high-fat, or ketogenic, diet of high fat, adequate protein and low carbohydrates can provide many health benefits as compared to the alternative of an unhealthy diet. Research suggests that a ketogenic diet builds a healthier body than
After Columbus mistakenly discovered the Americas in 1492, European countries were soon setting out to establish themselves in this new world. Spain was first to establish itself in the new world, using their powerful military and their navy. The new colonies were completely dictated by the king of Spain, such one of his policies allowing colonists to use the native tribes for forced labor. France was the second major power to establish itself. Their main focus was fur trapping and fur trading. The French quickly learned to work with the Native Americans. The few French settlers, who did come to America, were focused on fur trapping and trading. Because of this, most French settlements were either military forts or trading posts. England
1. Ernestine Friedl says that the position of women is higher the more they are involved in (l) primary subsistence (as owners or controllers, NOT merely as laborers) and (2) the PUBLIC distribution of the product of subsistence. Use this argument to account for the position of women in Kung society. Make sure you use both part (l) and part (2) of Friedl’s argument. (Don’t worry that Friedl’s argument is simplistic; she is not trying to say that women’s role in subsistence is the ONLY factor that affects their position in society.)
I am writing to express my sincere appreciation and to thank you for supporting H.R. 6261.
It’s been two days since they disappeared. Two days since the neighbors got their mail. Two days since the news anchors appeared on television. Two days since I last saw anyone over 16. I don’t know what the FUCK is happening! I woke up and they were all gone. Everyone! Cops… Teachers… Parents… EVERYONE. I’m keeping a journal. If this all goes to shit… I want someone to know.
Why do we speak of ‘basic” rather than “primitive” religions? We speak of basic religion because basic religion came from prehistory or are practiced in remote places. And elements of the basic religions are found to some degree in all religions. Basic religions represent the majority of the total religious experience of humankind. While primitive religion carries with it connotations of being backward, simple, even childlike. Christian or Muslim or Jew may tend to look down on these religions as being superstitious, uncivilized, or even savage. The term is misleading in suggesting that the religions of those peoples are somehow less complex than the religions of "advanced" societies.
Among the five forces of competition; existing competitive rivalry between suppliers, threat of new market entrants, bargaining power of buyers, power of suppliers and threat of substitute products, the most significant for UnitedHealth Group are threats for substitute products and rivalry among competing firms. Given the fact that there are numerous healthcare insurance firms in the world; there are also a number of substitutes for the corporation products and services. In recent years, the banking industry has become involved in insurance activities. They provide some medical plans, which act as substitutes to the UnitedHealth Group products. Banc assurance, otherwise known as the bank insurance model, is a very common phenomenon in this global world. Banc assurance is an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank’s client base. This type of partnership can be profitable for both, the bank and the insurance company. Banks can earn additional revenue by selling the insurance products and insurance companies are
b) What is the firm’s forecasted average daily sales for the first three months of operations? For the entire half-year?