Question: The state of California set up its own earthquake insurance
The state of California set up its own earthquake insurance program. Because the state agency in charge has few staff members, it pays private insurance carriers to handle claims for earthquake damage. These insurance firms receive 9% of each approved claim. Is this compensation scheme likely to lead to opportunistic behavior by insurance companies? What would be a better way to handle the compensation?
Answer to relevant QuestionsA bank can make one of two types of loans. It can loan money to local firms, and have a 75% probability of earning $ 100 million and a 25% probability of earning $ 80 million. Alternatively, it can loan money to oil ...In the situation described in Question 4.4, how do your answers change if Arnie’s first contract changes so that he receives a basic fixed wage of 10 and, in addition, a bonus equal to 80% of any net income?Many law firms consist of partners who share profits. On being made a partner, a lawyer must post a bond, a large payment to the firm that will be forfeited on bad behavior. How would such an arrangement reduce moral hazard ...Illustrate and describe the effects on output and welfare if the government regulates a monopoly so that it may not charge a price above p, which lies between the unregulated monopoly price and the economically efficient ...Let H = E – E be the amount that emissions, E, are reduced from the competitive level, E. The benefit of reducing emissions is B(H) = AHα. The cost is C(H) = Hß. If the benefit is increasing but at a diminishing rate in ...
Post your question