An efficient market for risk, such as an insurance market, is most likely to exist:
A) when there is a level playing field, so that all participants have approximately the same wealth and the same degree of risk aversion.
B) when the sellers of insurance are risk-averse but the purchasers are not.
C) when there are significant differences between individuals' wealth levels and attitudes toward risk.
D) in the presence of private, or asymmetric, information.

Question

Quizplus · Accepted Answer

An efficient insurance market is more likely to exist when there are significant differences in individuals' wealth levels and attitudes toward risk, as this creates a demand for risk-sharing and insurance products.

An Efficient Market for Risk, Such as an Insurance Market