Adverse Selection:
The previous example illustrates a very important problem in real life which is called “adverse selection”. Low-quality widgets crowds out high-quality widgets, since the former are cheaper to produce and the cost of finding out the quality is very high for consumers. The term itself emanates from the insurance business and it signifies a common phenomenon encountered by insurance companies.
When insurance companies set an insurance premium (price) on one of its products (coverage against some damage) it should reflect the average probability of an accident (causing the damage) in the entire population. However, with such a premium there will be (maybe about) half of the potential customers which has a probability of the accident below this premium and half with a probability above. Most of the customers with low probabilities will not buy the insurance policy and the average probability of the customers actually buying insurance will be above the population average. The insurance company has attracted the riskiest people, by self-selection. If the insurance company increases its premium in response to losses incurred, this will only make the matter worse, since they will only attract an even worse sample of customers. It’s a common problem that markets for many types of insurance policies do not exist.
Adverse selection in the market for health insurance is such a serious problem that most countries have instituted compulsory health insurance, financed by payroll taxes. The consumers have no choice in this case, but it’s still better than having no working private market at all. The problem is, as before, that the high risks generate a negative externality which makes it impossible for low risks to buy insurance, despite the opportunity for a mutually beneficial contract to be signed, given full information.
Latest technology based Economics Online Tutoring Assistance
Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Intermediate Microeconomics homework help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Intermediate Microeconomics, project ideas and tutorials. We provide email based Intermediate Microeconomics homework help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Intermediate Microeconomics. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Economics homework help and assignment help services. They use their experience, as they have solved thousands of the Computer assignments, which may help you to solve your complex issues of Intermediate Microeconomics. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.
www.tutorsglobe.com offers Binding Scope and Extent homework help, assignment help, case study, writing homework help, online tutoring assistance by computer science tutors.
Need authentic World Regional Geography Assignment Help to gain maximum scores? Hire best professional tutors and score well!
Field Effect Transistors tutorial all along with the key concepts of Field effect transistor operation, Terminals of the field effect transistor, Kinds of field effect transistors
tutorsglobe.com working capital management assignment help-homework help by online financial management tutors
Get 24x7 accessible Sales Management Assignment Help service by qualified tutors at viable rates and score top grades easily.
Pedigree analysis tutorial all along with the key concepts of Autosome, Chromosome number, Karyotype, Homologous chromosome, Nondisjunction, Dosage compensation and Codominance
tutorsglobe.com root modifications assignment help-homework help by online root system tutors
purification of metals tutorial all along with the key concepts of liquation, distillation, electrolysis, zone refining, parke process, mond process, isolation of some important transition metals and alloys
Theory and lecture notes of Theory of Sample Size Determination all along with the key concepts of Sample size determination, Population Mean and Population Proportion. Tutorsglobe offers homework help, assignment help and tutor’s assistance on Sample Size Determination.
Theory and lecture notes of Chi-square test for independence all along with the key concepts of chi-square test for independence, homework help, assignment help. Tutorsglobe offers homework help, assignment help and tutor’s assistance on Chi-square test for independence.
First-class Computer Organization or Architecture Assignment Help is available 24x7 with PhD tutors to resolve all problems and to ace your grades
origin, evolution and structure of galaxies tutorial all along with the key concepts of active galactic nuclei, galaxy properties and correlations, classification of galaxies and cosmic structure formation
Don’t hesitate to avail the impeccable Gender in Health and Body Assignment Help service from the qualified tutors at low prices to score high.
tutorsglobe.com sql assignment help-homework help by online computer programming tutors
calculation of the cpi, consumer price index assignment help - homework help, www.tutorsglobe.com offers cpi assignment help - consumer price index homework help
1950439
Questions Asked
3689
Tutors
1457907
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!