by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Fundamental Law of Insurance?The major additional costs to insurance companies, other than the payment of claims, are the costs of running a business: the administrative costs of hiring workers, administering accounts, and processing insurance claims. For...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Risk Groups?Not all of those who purchase insurance face the same risks. Some people may be more likely, because of genetics or personal habits, to fall sick with certain diseases. Some people may live in an area where car theft or home robbery is more likely...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Moral Hazard Problem?Moral hazard refers to the case when people engage in riskier behavior with insurance than they would if they did not have insurance. For example, if you have health insurance that covers the cost of visiting the doctor, you may be...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is The Adverse Selection Problem?Adverse selection refers to the problem in which insurance buyers have more information about whether they are high-risk or low-risk than the insurance company does. This creates an asymmetric information problem for the insurance...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How to Force Cooperation in a Prisoner’s Dilemma? The way out of a prisoner’s dilemma is to find a way to penalize those who do not cooperate. Perhaps the easiest approach for colluding oligopolists, as you might imagine, would be to sign a contract with each other...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Cooperation Affect the Kinked Demand Curve? Because oligopolists cannot sign a legally enforceable contract to act like a monopoly, the firms may instead keep close tabs on what other firms are producing and charging. Alternatively, oligopolists may choose to...
