Daily Assignment Oct 29 - Daily Assignment#15 Monday Market Failure III Risk-spreading Institutions Readings The Nonexistence of Markets for Some Goods

Daily Assignment Oct 29 - Daily Assignment#15 Monday Market...

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Daily Assignment #15 Monday, October 29, 2012 Market Failure III: Risk-spreading Institutions Readings “The Nonexistence of Markets for Some Goods,” Stokey & Zeckhauser, pp. 299 bottom-301 top (Collab) “Consumer Insurance and Insurance Rates,” Hylland (Collab) Key Terms Adverse selection choosing to insure product because client knows the operation will be less than optimal Adverse incentives (moral hazard) choosing to take care of insured product with less diligence because the cost of poor outcome is shared with someone else; efforts to avoid unfortunate outcomes will be diminished Uncertainty not knowing what the future may bring through existing techniques and knowledge Risk premium administrative costs that are included in an insurance payment; must be paid because the company is risk averse Administrative costs may be viewed as a risk premium; administrative expenses incurred in the course of insuring people Reinsurance a fixed part of an insurance that must
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  • Fall '11
  • Kleiman
  • insurance policy, Adverse selection, administrative costs, insurance rates

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