Purchase Solution

Asymmetric Information: Moral Hazard

Not what you're looking for?

Ask Custom Question

Introduction: You are the representative of an insurance company and have been asked to recheck the application of Mr. Andrew Smith. Mr. Andrew Smith has taken an insurance policy for all the members of his family. Mr. Andrew Smith suffers from a genetic disorder that afflicts all members of his family. The disorder affects the lungs and can cause sudden death if the person indulges in a strenuous physical activity or exercise. At the moment, the entire family is in good health and no one in the neighborhood is aware of this malady. Mr. Andrew Smith has not disclosed any information about this genetic disorder to the insurance company.

Task: Discuss whether this act amounts to a moral hazard. If not, under what circumstances can it be termed as moral hazard? Begin the discussion as follows:
?Discuss at least two acts that can be included in moral hazard.
?Discuss the circumstances in which any act becomes a moral hazard.

Build your responses based on the following:
?Possible safeguards to avoid a moral hazard.
?At least two ill effects of a moral hazard.

Thank you.

Purchase this Solution
Solution Summary

The response addresses the queries posted in 414 Words, APA References

Solution Preview

The response addresses the queries posted in 414 Words, APA References

Moral Hazard: Effects & Safeguards

Moral Hazards

Moral Hazard is a condition or possibility under which a particular party separated from the risk behaves differently from the situation in which it was exposed to the risk fully. The Moral Hazards are generated, when a party becomes careless about the actions and leave the responsibility of the consequences of those actions on another party (Williams, 1999). For example, in an Act, the owner of a car becomes less alert to lock the vehicle and is careless about theft, as the negative consequences of the theft would be borne by the insurance company of his car. In another act, some people after making fire insurance, become ...

Solution provided by:
Ashish Sharma, MBA (IP)
Education
  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
Recent Feedback
  • "Thank You so much! "
  • "Always provide great help, I highly recommend Mr. Sharma over others, thanks again. "
  • "great job. I will need another help from you. "
  • "first class!"
  • "Thank you for your great notes. Will you be willing to help me with one more assignment? "
Purchase this Solution
Free BrainMass Quizzes
Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

View More Free Quizzes
Related BrainMass Solutions

  • Securities of corporations,financial intermediary,financial

    Answer: asymmetric information Asymmetric information is one party having insufficient knowledge about other party involved in a transaction to make accurate decisions.

  • Adverse Selection versus Moral Hazard Incentive Problem

    The other is Moral Hazard.

  • Capital budgeting projects

    Asymmetric information represents a market situation in which: b. One party in a transaction has more information than the other party. 3. Moral hazard is the: d.

  • Adverse Selection Example

    579338 Adverse Selection Example Describe either an adverse selection or moral hazard problem a company is facing. MAKE NOTE (describe) the qualities that make it either adverse selection or moral hazard.

  • Asymmetric Information and Agency Costs Theory

    Moral Hazard- immoral behavior that takes advantage of asymmetric information after a transaction. For example, if someone has fire insurance they may be more likely to commit arson to reap the benefits of the insurance.

  • Money, Banking and Regulations

    This is the problem of A) moral hazard Moral hazard is the consequence of asymmetric information after the transaction occurs.

  • Finance - Moral hazard

    Sharing information as completely as possible is a factor in how moral hazard is controlled and mitigated. If any party does not fully disclose information, then others might bear the burden.

  • Principles of Microeconomics

    b. asymmetric information. c. moral hazard. d. a public goods problem Answer: (b) Asymmetric Information The failure of two parties to a transaction to have the same relevant information.

  • Adverse selection vs. moral hazard

    Moral Hazard occurs after transaction occurs. Moral hazard means that those who insure have less incentive to reduce their exposure to risk. The differences between adverse selection and moral hazard are discussed.

View More Related Solutions