question archive Which of the following is an example of moral hazard? A
Which of the following is an example of moral hazard? A
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Which of the following is an example of moral hazard?
A. A driver who reduces his level of insurance coverage after his premiums rise
B. A person who engages in unrisky behavior after enrolling in his firm's health insurance plan
C. A person who drives more recklessly after obtaining automobile insurance
D. All of these
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- The correct answer is C. A person who drives more recklessly after obtaining automobile insurance.
Moral hazard implies a loss for insurance companies, since they charge a fee according to the ex-ante probability risk, but since the driver changes his risk profile after signing the contract, companies have a higher chance of incurring in loses.
