If a tire company knows that customers buying insurance for their tires will increase the likelihood of being reckless,there is a problem of _____________.In order to combat this problem,the tire company should__________.

Question

Quizplus · Accepted Answer

The problem is of moral hazard because customers know that they are insured and hence, tend to take more risks. To combat this, the tire company should require the customer to sign a contract stating that insurance does not cover tire repair for reckless driving, thus reducing the incentive for reckless behavior. Option D addresses this issue effectively.

If a Tire Company Knows That Customers Buying Insurance for Their