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Thisquestionisaboutinformationasymmetry [10 marks] A. Ineachofthefollowingsituations,explainwhythereisasymmetricinformation,andidentifytheproblemofadverseselection. Thesaleoflifeinsurance[2.5marks] Thesaleofusedcomputers[2.5marks] B. Identifytheprincipal,theagentandthemoralhazardinherentineachofthefollowingsituations. Inordertoreducepersonalinjuryclaims,insurancecompaniessuccessfullylobbylegislatorstopasslawsrequiringtheuseofseatbeltsinautomobiles.[2.5marks] Auniversityprovidesfreeemployeehealthinsurance,whichreducesthedirectcosttothefacultyandstaffofvisitingthedoctorandthedentist.[2.5marks]

Thisquestionisaboutinformationasymmetry [10 marks]

A. Ineachofthefollowingsituations,explainwhythereisasymmetricinformation,andidentifytheproblemofadverseselection.

  1. Thesaleoflifeinsurance[2.5marks]
  2. Thesaleofusedcomputers[2.5marks]

B. Identifytheprincipal,theagentandthemoralhazardinherentineachofthefollowingsituations.

  1. Inordertoreducepersonalinjuryclaims,insurancecompaniessuccessfullylobbylegislatorstopasslawsrequiringtheuseofseatbeltsinautomobiles.[2.5marks]
  2. Auniversityprovidesfreeemployeehealthinsurance,whichreducesthedirectcosttothefacultyandstaffofvisitingthedoctorandthedentist.[2.5marks]

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