Asymmetric information and insurance price.

Question

Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person’s health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person? Reconsider the previous health insurance question. Of the choices below, which one is closest to the spread between the minimum possible number of reports and the maximum possible reports to achieve the company’s desired outcome? Reconsider again…

Answer 1

Question

Chapter 4.A, Problem 1ADQ

To determine

Asymmetric information and insurance price.

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Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person’s health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person? Reconsider the previous health insurance question. Of the choices below, which one is closest to the spread between the minimum possible number of reports and the maximum possible reports to achieve the company’s desired outcome? Reconsider again…

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