Indicate whether the statement is true, false, or unclear, and justify your answer.If a health insurance company could somehow monitor everything a customer does and thinks, it could create a full-insurance contract with no moral hazard.

Indicate whether the statement is true, false, or unclear, and justify your answer.If a health insurance company could somehow monitor everything a customer does and thinks, it could create a full-insurance contract with no moral hazard.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 7MC

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Concept explainers

Moral Hazard

The moral is a person's behavior towards himself /herself, society, organization, and others. Hazard is something that is happening and is not good. A person may be morally good or bad. It depends on his attitude, ethics, integrity, and values. A person may have the highest reverence for money to that for the truth. In this case, the person may lie and it is said that the person is morally bad.

Question

Indicate whether the statement is true, false, or unclear, and justify your answer.
If a health insurance company could somehow monitor everything a customer does and thinks, it could create a full-insurance contract with no moral hazard.

Expert Solution

Step 1

The moral hazard refers, the situation in which one party engaged on a risk by knowing that other party is protected against the risk.

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Similar questions

Indicate whether each statement is true or false, and justify your answer.Queues can help to equitably reduce moral hazard.
Indicate whether the statement is true, false, or unclear, and justify your answer.An all-you-can-eat buffet is a classic example of moral hazard, because a price distortion induces overconsumption.
Indicate whether the statement is true or false, and justify your answer.Private markets are powerless to combat adverse selection, so the only solution is a government-mandated insurance contract.
Indicate whether the statement is true, false, or unclear, and justify your answer.It would be easy for private health insurers to eliminate moral hazard by redesigning insurance contracts, but they are prevented from doing so by strict government regulations (at least in most developed countries).
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True or False. An all-you-can-eat buffet is a classic example of moral hazard, because a price distortion induces overconsumption. Be sure to justify your answer.
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Indicate whether the statement is true, false, or unclear, and justify your answer.The fact that high-risk customers are usually less risk-averse than low-risk customers helps counteract adverse selection.
Indicate whether the statement is true, false, or unclear, and justify your answer.Pauly (1974) shows that the socially optimal level of insurance in a market is either full or none, depending on whether moral hazard or risk aversion predominates.
Indicate whether the statement is true, false, or unclear, and justify your answer.An uninsured patient who incessantly visits his doctor because he always thinks he is getting sick is an example of moral hazard.
Describe the challenges that adverseselection and moral hazard pose for insurance.
Indicate whether the statement is true, false, or unclear, and justify your answer.When the price elasticity of demand for health care is zero, health insurance coverage induces no moral hazard.