Share
Explore BrainMass

Mortal hazard problem and adverse selection problem

Place an 'M' beside the items in the following list that describe a mortal hazard problem and an 'A' beside those that describe an adverse selection problem:

a. A person with a terminally illness buys several life insurance policies through the email.
b. A person drives carelessly because he or she has automobile insurance.
c. A person who intends to "torch" his warehouse takes out large fire insurance policy.
d. A professional athlete who has a guaranteed contract fails to stay in shape during the off-season.
e. A woman who anticipates having a large family takes a job with a firm that offers exceptional child care benefits.

Solution Preview

Place an 'M' beside the items in the following list that describe a moral hazard problem and an 'A' beside those that describe an adverse selection problem;

Moral hazard is the result of maximizing behavior. A person weighs the costs and benefits of an action, and when benefits exceed costs, he takes the ...

Solution Summary

This solution is comprised of a detailed explanation to select mortal hazard problem and adverse selection problem.

$2.19