1) Consider the Bismarck model. All individuals are required to have either public or private insurance. This is referred to as an insurance _____________. (2) Consider the Bismarck model. Mark all answers that best describe this model. (a) Adverse selection is not an issue with the Bismarck model. (b) The Bismarck model limits moral hazard using gatekeeping. (c) In the the Bismarck model all health workers are employees of the government. (d) The primary goal of the Bismarck model is wealth. (e) The Bismarck model limits moral hazard using queues.

1) Consider the Bismarck model. All individuals are required to have either public or private insurance. This is referred to as an insurance _____________. (2) Consider the Bismarck model. Mark all answers that best describe this model. (a) Adverse selection is not an issue with the Bismarck model. (b) The Bismarck model limits moral hazard using gatekeeping. (c) In the the Bismarck model all health workers are employees of the government. (d) The primary goal of the Bismarck model is wealth. (e) The Bismarck model limits moral hazard using queues.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.4P

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Similar questions

Health insurance is normally seen as a good that is most valuable to sick people, since health expenditures are highest for the sick. Yet, in the basic insurance model discussed in this chapter, actuarially-fair health insurance is worth nothing to people who are certain to become sick (p = 1). Why does the standard model produce this result? How is this different from the way real-world insurance markets work?
This question is broken into 4 parts. Please answer all parts. A. Explain the relation between moral hazard and insurance premiums. B. Now think about how people with different health risks assess insurance products with a given deductible, and explain how supporters of minimizing adverse selection should think about a proposal (say from Bernie Sanders) that all insurance policies should have zero deductibles and coinsurance. C. Does community rating make the policy tradeoffs inherent in b harder or easier to manage? D. Would a purchase mandate make the policy tradeoffs inherent in b + c harder or easier to manage?
Use a two-state model with clearly marked labels to show the following statements: a) People with different risk profiles (ie., risk-secking vs. risk-neutral vs. risk-averse) have different expected utility curves. b) A risk-neutral person can be indifferent to a full insurance (compared to no insurance). c) A risk-seeking person does not like the idea of diversification d) For-sure outcomes with higher payoffs are preferred to for-sure outcomes with lower payoffs.
TRUE or FLASE? A. The Beveridge model in the United Kingdom reduces moral hazard by having public providers compete to provide high quality care. B. The Bismarck Model in Germany reduces adverse selection primarily by having a universal, compulsory health insurance system. C. The Bismarck Model in Germany emphasizes equity over choice whereas the Beveridge Model in the United Kingdom emphasize choice over equity. D. The Bismarck Model in Germany reduces moral hazard by requiring cost sharing. E. The Bismarck Model in Germany controls costs by allowing private insurers to negotiate competitive rates with private physicians.
Scenario 2 Tess and Lex earn $40,000 per year and all earnings are spent on consumption (c). Tess and Lex both have the utility function (sqrt c) . Both could experience an adverse event that results in earnings of $0 per year. Tess has a 1% chance of experiencing an adverse event and Lex has a 12% chance of experiencing an adverse event. Tess and Lex are both aware of their risk of an adverse event. Refer to Scenario 2 Suppose that insurance companies do not know specific probabilities of adverse events for Tess or Lex, but do know the average probability of an adverse event. If they assumed that both Tess and Lex purchase full insurance, what is the actuarially fair premium charged? Round to two decimal places
Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.
Consider the Figure, which depicts a scenario in the Rothschild–Stiglitz model of adverse selection.a. Explain why α is not a valid pooling equilibrium.b. Explain why your answer to the previous question depends on an assumption that expected utility theory holds.c. Suppose the Pcorian government is trying to maintain α as a pooling equilibrium to ensure universal insurance for its long-suffering populace. The government health minister is familiar with the work of Kahneman and Tversky and wants to take advantage of the fact that Pcorians are loss averse and susceptible to framing. When a private insurance company begins offering contract δ, how should the government frame the tradeoff between α and δ to try to keep robust customers at α?
Julia is a 28- year-old nonsmoking , non-drinking female of normal weight Because of adverse selection in health insurance , (A) She will be charged less for her premiums than people who are higher risks ) B)She is less likely to buy health insurance than the average person, because policy premiums are based on expected medical expenditures of people who are less healthy than she is ( C) When she get health insurance , she will be less likely to take care of herself. ) D)She must get health insurance early in life, and is likely to lose health insurance if she smokes , drinks to excess, or gains weight. E) She is more likely than the average person to buy health insurance , because she is more likely to be offered it.
Provide an intuitive discussion of how adverse selection affects the used-car market. Describe one potential signal that can help alleviate the problem of adverse selection in this market and discuss how this signal satisfies the two necessary assumptions for it to be used as a credible signal.
Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.
Individuals will prefer to fully insure against a potential adverse event if A. individuals are risk-loving and insurance is priced at an actuarially fair rate. B. individuals are risk-averse and insurance is priced at an actuarially fair rate. C. individuals are risk-loving and insurance is priced above the actuarially fair rate. D. individuals are risk-averse and insurance is priced above the actuarially fair rate.
Suppose that left-handed people are more prone to injury than right-handed people. Lefties have an 80 percent chance of suffering an injury leading to a $1,000 loss (in terms of medical expenses and the monetary equivalent of pain and suffering) but righties have only a 20 percent chance of suffering such an injury. The population contains equal numbers of lefties and righties. Individuals all have logarithmic utility-of-wealth functions and initial wealth of $10,000. Assume perfectly competitive insurance market and find (i) the first best and (ii) the second-best contracts.