Problem
A few years ago, a new online insurer appeared. Found at www.ticketfree.org, the insurer offered, for a price, up to $500 of coverage against speeding tickets.
a. Who has more valuable information in this potential transaction, the buyer of speeding ticket insurance or the seller?
b. Explain why the existence of information asymmetries creates an adverse selection problem in the market for speeding ticket insurance.
c. What is likely to happen to the behavior of both faster and slower drivers once they have purchased speeding ticket insurance? What is this kind of problem called?
d. Ticketfree.org is no longer in operation. Use your answers to (b) and (c) to explain why.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.