DO NOT COPY/PASTE FROM INTERNET! Any person with a good grasp of health economic
ID: 1108926 • Letter: D
Question
DO NOT COPY/PASTE FROM INTERNET!
Any person with a good grasp of health economics + Micro & Macro economics should be able to answer this question without problem
Any graphs provided in your answers should be clearly labelled.
your response to each question should be around 500 words (no less than 250 but no more than 1000 for each question)
your response to each question should be around 500 words (no less than 250 but no more than 1000 for each question) Any graphs provided in your answers shoul be clearly labelled.Explanation / Answer
Moral hazard is a problem which arises due to asymmetric information between the parties.
In moral hazard one party tries to take so much risk because one party knows that other party has to incur cost . Thus due the incomplete information between parties one party is taking too much risk.
Example - Suppose I have purchased an accident insurance from a company because company doesn't observe my actions I will prefer to take risk and do not take adequate measure to prevent the accident.
Ex ante tells us about the behaviour of parties involved before occuring of events.
Ex post tells us about the behaviour of parties involved after the occuring of events.
Solutions
1. Disclosure of more information to the seller from buyer. This is demand side measure because buyer has to give more information about its actions and security measures to insurance company.
2. Securitization of assets i.e giving loans to those who take risky activity by giving loans backed by assets. This is supply side measure to prevent moral hazard because banks are supplying loans to consumers.
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