. Because medical records are private, an individual applying for health insurance will kn
. Because medical records are private, an individual applying for health insurance will know more about his own health conditions than will the insurance companies to which he is applying for coverage. Is this likely to increase or decrease the insurance premium that he will be offered? Why?
2. Why is it in the interest of new homebuyers and builders of new homes to have government building codes and building inspectors?
3. 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.
a. A person with a terminal illness buys several life insurance policies through the mail.
b. A person drives carelessly because she has automobile insurance.
c. A person who intends to torch his warehouse takes out a 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 childcare benefits.