Suppose that in the insurance model with asymmetric information, a consumer's accident probability is a function...

 

Transcribed Image Text:

Suppose that in the insurance model with asymmetric information, a consumer's accident probability is a function of his wealth. That is, z=f(w). Also suppose that different consumers have different wealth levels, and that/'>0. Does adverse selection necessarily occur here? Suppose that in the insurance model with asymmetric information, a consumer's accident probability is a function of his wealth. That is, z=f(w). Also suppose that different consumers have different wealth levels, and that/'>0. Does adverse selection necessarily occur here?

Answer rating: 100% (QA)

Yes adverse selection is likely to occur in the insurance model with asymmetric information where a ... View the full answer