How do markets for insurance use no-claim bonuses to cope with private information?
What will be an ideal response?
"No-claim" bonuses are commonly used in auto insurance. One of the most important pieces of information a person can give an auto insurance company is his or her propensity to drive safely and avoid accidents. However, this information is only believable to the extent that driving records really do differentiate good drivers from bad drivers. Driving records cover only a short period of time and, randomly, some bad drivers will establish good records. So a good driving record is not a guarantee that the driver is a safe driver. The screening device that insurance companies use to overcome this potential problem is the "no-claim" bonuses that drivers accumulate when they do not make an insurance claim. Presumably, having not made a claim means that you were a good driver and did not need to make a claim!
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Initially, the economy is at point G in Figure 10-4 above. A change in per capita savings ________ will after complete adjustment ________
A) point X to point E; lower the growth rate of output per capita B) point X to point E; raise the growth rate of output per capita C) point E to point X; raise output and saving but not the growth rate of output per capita D) point E to point X; raise output and saving and the growth rate of output per capita
For a very long time the country of Zeeland has had an inflation rate of 9%. Suddenly its inflation rate drops to 3%. The drop in the inflation rate
a. could be due to slower money supply growth. We would expect unemployment to be higher. b. could be due to slower money supply growth. We would expect unemployment to be lower. c. could be due to higher money supply growth. We would expect unemployment to be higher. d. could be due to higher money supply growth. We would expect unemployment to be lower.
Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per HourComputers Per HourSmith10010Jones1206 If Smith and Jones devote all of their resources to producing computers, then the maximum number of computers they can produce in an hour is:
A. 16. B. 10. C. 6. D. 120.
Firm A and firm B both have total revenues of $200,000 and total costs of $250,000; firm A has total fixed costs of $40,000, while firm B has total fixed costs of $70,000. Which of the following statements are true in the short run?
A. Firm A should operate. B. Firm B should operate. C. Firm A should shut down. D. Firm B should shut down. E. both b and c