A Primer on Moral-Hazard Models

  title={A Primer on Moral-Hazard Models},
  author={Edward Simpson Prescott},
M oral hazard, a long-time concern in the insurance industry, is increasingly being recognized as a concern in the regulation of banking and other financial industries. A classic example of its possible perverse effects is the selling of a fire insurance contract to a group of uninsured individuals. If the premiums are based on the actuarial data of this group’s loss experiences, then the contract will be unprofitable. The reason for this loss is that with the introduction of fire insurance… CONTINUE READING
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