BackPedal is a bike-rental shop that rents bicycles, helmets, and other gear by the day. a. BackPedal
Question:
a. BackPedal offers an optional helmet rental for $10/day with the rental of a bicycle. To his surprise, the store manager has noticed that cycling accidents are higher among customers who rent helmets than those who do not. Explain this phenomenon using economic concepts. Assume that customers who do not rent helmets also do not own helmets.
b. BackPedal is considering offering helmets for free with a bike rental. Explain how this new policy will affect the issues you identified in part a.
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a Both moral hazard and adverse selection may be at play In terms of moral hazar...View the full answer
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