Adverse selec1on into health insurance 2 adverse

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Unformatted text preview: d so premiums are higher (skewed risk pool) Moral Hazard Graph Downward sloping demand curve for doctor services Assume fixed price for services Insurance reduces the price to 0 (assume no copays, etc.) Demand QMH instead of Q* 3 Consequences of moral hazard Premiums rise to cover higher risk, claims due to moral hazard Demand for (doctor) services rise raises the price for services Causes deadweight loss Solu1ons to Asymmetric Informa1on Signaling: High quality should signal their quality (warranty, sheepskin, get insurance through employer, etc.) The seller, worker, pa1ent sends the signal The employer, lender, insurer sets up an incen1ve sys...
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This note was uploaded on 01/18/2012 for the course PADP 6950 taught by Professor Fergi during the Spring '11 term at UGA.

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