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Business

Economics

why

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter27: The Basic Tools Of Finance

Section: Chapter Questions

Problem 5PA

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Concept explainers

Moral Hazard

The moral is a person's behavior towards himself /herself, society, organization, and others. Hazard is something that is happening and is not good. A person may be morally good or bad. It depends on his attitude, ethics, integrity, and values. A person may have the highest reverence for money to that for the truth. In this case, the person may lie and it is said that the person is morally bad.

Question

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a. If a pay-as-you-drive insurance program is being implemented to cope with automobile-related externalities associated with driving, what factors should be considered in setting the premium?

b. Would you expect a private insurance company to take all these factors into account? Why or why not?

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