Shawn buys automobile insurance from Safe-T Insurance Company.If Shawn avoids having an accident for three years,Safe-T will reduce the price he has to pay for his insurance.Nevertheless,he routinely drives fast and with reckless abandon.Which statement best characterizes this principal and agent problem
A) It would make sense for Safe-T to reduce Shawn's price of insurance now, rather than waiting to see if he has an accident in the next three years.
B) Shawn's behaviour is an example of adverse selection.
C) Safe-T Insurance Company is a principal; Shawn is an agent.
D) Shawn should avoid reporting any accidents to Safe-T.
Correct Answer:
Verified
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