Divorce is often very costly to all parties involved. Recently, Safeguard Guaranty Corporation began offering divorce insurance

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Divorce is often very costly to all parties involved. Recently, Safeguard Guaranty Corporation began offering divorce insurance that helps defray the financial hit imposed by a divorce. Divorce benefits are distributed as a lump sum to both former partners and are available after a mandatory 48-month waiting period.

a. Using a graph similar to Figure 16.1, show how the existence of divorce insurance may create a moral hazard problem.

b. How does Safeguard Guaranty deal with the problem of adverse selection? Explain.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Microeconomics

ISBN: 9781319105563

3rd Edition

Authors: Austan Goolsbee, Steven Levitt, Chad Syverson

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