Many corporations require all staff accountants to hold not only a degree in accounting but also to have a CPA license. There is a substantial higher cost to hiring CPAs.. Speculate on why corporations do not lower their explicit payroll cost by hiring accountants without a CPA. Consider how asymmetric information, moral hazard, and adverse selection may impact the perception of risk.

Many corporations require all staff accountants to hold not only a degree in accounting but also to have a CPA license. There is a substantial higher cost to hiring CPAs.. Speculate on why corporations do not lower their explicit payroll cost by hiring accountants without a CPA. Consider how asymmetric information, moral hazard, and adverse selection may impact the perception of risk.

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

Chapter19: The Problem Of Adverse Selection

Section: Chapter Questions

Problem 7MC

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Consider the following statement: Many corporations require all staff accountants to hold not only a degree in accounting but also to have a CPA license. There is a substantially higher cost to hiring CPAs. In your discussion post, address the following: Speculate on why corporations do not lower their explicit payroll cost by hiring accountants without a CPA. Consider how asymmetric information, moral hazard, and adverse selection may impact the perception of risk.
Speculate on why corporations do not lower their explicit payroll cost by hiring accountants without a CPA. Consider how asymmetric information, moral hazard, and adverse selection may impact the perception of risk.
Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material. Speculate on why police departments do not increase their applicant pool by dropping this requirement and how asymmetric information, moral hazard, and adverse selection are involved?
If people get higher pay from insurance than their pre premiums. Will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse selection? How will an insurance company deal with these problems.
Explain how risk aversion makes a market for insurance possible
If people get higher pay from insurance than their premiums, will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse selection? How will an insurance company deal with these problems?
Define the difference between moral hazard and adverse selection using an example. .
The difference between the actuarily fair price for insurance and the price a risk-averse individual is willing to pay to fully insure is called a-insurance benefit b-risk aversion c-the risk premium d-risk profit
Life insurance companies require applicants to submit to a physical examination as proof of insurability prior to issuing standard life insurance policies. In contrast, credit card companies offer their customers a type of insurance called “credit life insurance” that pays off the credit card balance if the cardholder dies. Would you expect insurance premiums to be higher (per dollar of death benefits) on standard life or credit life policies? Explain.
Which is not an example of asymmetric information? Group of answer choices A customer not knowing which insurance plan is best A client making a purchase of a used private airplane of unknown condition A mail carrier making her deliveries An insurer not having the full information about a client’s drug use A tree service recommending needless pruning on fruit trees is an example of: Group of answer choices adverse selection. mutually beneficial trades. moral hazard. a trade fallacy.
Suppose that every driver faces a 1% probability of an automobile accident every year. An accident will, on average, cost each driver $15,000. Suppose there are two types of individuals: those with $90,000.00 in the bank and those with $3,000.00 in the bank. Assume that individuals with $3,000.00 in the bank declare bankruptcy if they get in an accident. In bankruptcy, creditors receive only what individuals have in the bank. Assume that both types of individuals are only slightly risk averse. In this scenario, the actuarially fair price of full insurance, in which all damages are paid by the insurance company, is . Assume that the price of insurance is set at the actuarially fair price. At this price, drivers with $3,000.00 in the bank likely buy insurance, and those with $90,000.00 in the bank likely buy insurance. (Hint: For each type of driver, compare the price of insurance to the expected cost without insurance.) Suppose a state law has been passed…
___ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals a. Guaranteed renewability b. Cherry-picking c. Moral Hazard d. Asymmetric Information e. Adverse Selection